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THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


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a. I. 


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THE 

TRUST  PROBLEM 


BY 

JEREMIAH  WHIPPLE  JENKS,   PH.D. 

fVofusor  of  Politii  '  Science,   Cornell    University,   Expert  Agent    Unittd 

States  Industrial  Commission,  Contult.Hg  Expert  Unittd 

States  Department  of  Labor 


NEW  AND  REVISED  EDITION 


New  York 

McCLURE,  PHILLIPS  &  CO, 

1 901 


Copyright, 

1900  and  1901,  by 

JEREMIAH  W.  JENKS 


New  and  Revised  Edition 


Bus.  Admin. 
Library 

273/ 
T42^ 


G.  B.  J. 


K9  KEENEST,    ABLEST,    KINDEST 
CRITIC 


1496862 


Contents 


INTRODUCTION 

PAGE 

Sources  of  information 3 

Purpose  and  nature  of  book 4 

Citations  and  nature  of  data 5 

Conclusions  of  Chicago  conference  on  trusts 6 

Recommendations  of  Industrial  Commission 6 

Remedies  for  trusts,  by  Gov.  Roosevelt,  Mr.  Bryan, 

and  Mr.  Coler 6 

Definition  of  trust 8 

Viewpoint  of  author 9 


CHAPTER  I 

Competition  :   Its  Nature 

Need  of  studying  competition  to  understand  com- 
bination         10 

Most   writers  assume    free    competition  contrary   to 

facts  of  business  life 10 

Prices  often  not  fixed  by  competition ii 

In  most  trade  an  element  of  combination  exists II 

Nominal  competition  at  times  encouraged  to  prevent 

real  competition 13 

Competition  more  nearly  free  in  wholesale  trade,  but 

the  element  of  combination  remains.  ...    14 

In  manufacture  the  nature  of  goods  determines  the 

character  of  the  competition   14 

Goods,  the  quality  of  vrhich  can  be  readily  tested  and 

which  are  uniform,  compete  in  price 15 

V 


Contents 


Goods  with  brands  compete  in  advertising,    not  in 

price 15 

Amount  of  capital  needed  for  plant  determines  nature 

of  competition 16 

Case  of  the  sugar  industry 17 

Nature  of  competition  when  little  capital  is  needed..  18 

When  much  capital  is  needed 19 

In  latter  case  combination  is  natural 20 


CHAPTER  II 

The  Wastes  of  Competition 

Competitive  prices  usually  high 21 

Wastes  of  competition  distinguished  from  those  of 

production  on  a  small  scale 21 

Competitive   prices  at  times  higher  than  monopoly 

prices 22 

Difficulties  of  securing  a  market    22 

Travelling  salesmen 23 

Skill  of  salesmen 24 

Frequency  of  their  visits 25 

Amount  of  such  loss 26 

Cost  of  advertising. 27 

Offers  of  premiums 28 

Economic  disadvantages  of  these  methods 28 

Extension  of  credits  from  competition 29 

Convenience  to  buyers  from  a  large  establishment  . .  30 

Savings  in  freight  charges 31 

Restriction  of  output.     The  Whiskey  Pools 33 

Advantages  of  running  plants  at  full  capacity 34 

The  Sugar  Trust  another  example    35 

Distribution  of  machinery  in  large  combination 36 

Business  ability  a  factor  in  cheap  production 38 

Skilful  organization  an  absolute  saving  of  energy  ...  39 

A  good  executive  gets  best  work  from  subordinates  .  40 

Distribution  of  talent  important 41 

Combination  between  producers  of  raw  material  and 

finished  product 42 

Manufacture  of  by-products 42 

Economic  function  of  combination  in  saving  waste 

energy 42 

vi 


Contents 

CHAPTER  III 
Favors  to  Industrial  Combinations 

PAGE 

Special  favors  a  source  of  monopoly 44 

The  protective  tariff  has  often  aided  the  formation  of 

combinations 45 

The  same  principles  found  in  part  in  unprotected 

industries 46 

Probable  effect  of  removal  of  tariff 46 

International  combinations  promoted  thereby  ......  47 

Freight  discriminations  a  cause 49 

Discriminations  contrary  to  law  and  public  policy, 
but  are  given  at  times  in  payment  for  real  ser- 
vices rendered 51 

Freight  advantages  without  illegal  discriminations  . ,  53 


CHAPTER  IV 

Combination  and  Monopoly 

Legal  monopolies 56 

Natural  monopolies 57 

Meaning  of  ' '  Monopoly  " 58 

Assuming  cost  as  constant,  the  holder  of  a  patent  in 

fixing  prices  considers  the  nature  of  the  demand.  59 
A  large  manufacturer  may  be  a  "  monopolist "  with- 
out special  privilege 60 

The  Trust,  in  fixing  prices,  must  consider  potential 

competitors 61 

They  may  be  called  into  the  field  soon  by  high  prices. 

They  may  be  kept  out  by  moderate  prices 62 

Can  great  capital  alone  secure  monopoly  ?. 64 

Competition  attracted  by  large  profits 66 

Effective  rivalry  means  losses  to  both  parties 66 

Difference   between   large  business  and   capitalistic 

monopoly 67 

The  element  of  fear  important  in  preventing  com- 
petition   68 

vii 


Contents 

PAGE 

Competition  by  a  combination  in  collateral  industry.       69 

Virtual  monopoly  from  power  of  large  capital  seems 
possible,  but  this  is  not  so  complete  as  a  legal 
monopoly  or  natural  monopoly 70 

Combinations  have  usually  overreached  ;  but  have 
sometimes  held  much  controlling  power  in  mar- 
ket.    Examples 70 

The  large  capital  gives  power  which  secures  special 

favors 73 

Desire  to  exercise  personal  power  an  element  in  pro- 
moting monopoly 73 

Combinations  in  the  export  trade 75 

Summary 76 


CHAPTER  V 

Promoter  and  Financier 

Promoter  defined 77 

Stock  certificates,  issued  for  cash 78 

Stock  issued  for  property 78 

Stock  issued  for  services 79 

The   bondholders   pay   the   costs   of   building ;   the 

stockholders  reap  surplus  profits 82 

This  custom  frequent  among  public-service  corpora- 
tions    83 

Like  methods  in  industrial  companies 83 

Preferred  stock  in  lieu  of  bonds 84 

Advantages  of  preferred  stock 85 

The  promoter's  pay  is  often  in  speculative  securities  ; 

he  often  receives  large  amounts 87 

The  organization  of  the  American  Tin  Plate  Com- 
pany      88 

The  financier 90 

Underwriting  defined 91 

Underwriters'  profits 92 

The  profits  of  the  organizers  of  Distilling  Company 

of  America 93 

The  promoter's  work  often  injurious  in  i:s  results.  . .  94 
At  times  the  organization,  by  paying  debts  of  con- 
stituent companies,  has  relieved  small  banks  of 

doubtful  securities 95 

viii 


Contents 

PAGE 

Bank  officials  at  times  improperly  influenced 96 

The  evil  of  speculation  encouraged  by  promoters  is 

great   97 

CHAPTER  VI 
The  Basis  of  Capitalization 

Stock  on  cash  valuation 98 

Massachusetts  law.     Puerto  Rico 99 

Capitalization  on  earning  capacity 99 

Conceals  state  of  business ;  stock  is  more  advanta- 
geously sold 102 

Does  stock  watering  affect  the  public  ? 103 

Capitalization  at  cash  value  may  mislead 104 

Overcapitalization  an  influence  toward  high  prices. .  105 
Full  information  to  investors  and  stockholders  the 

only  remedy 105 

Stock  to  represent  proportional  parts  of  business. . . .  106 

CHAPTER  VII 

Methods  of  Organization  and  Management 

Systems  of  pooling 108 

Addyston  Pipe  Company 109 

A  coal  pool's  methods IIO 

The  "  Trust  "  form ill 

The  Trust  reorganizations II3 

Dissolution  of  Standard  Oil  Trust  and  reorganization  113 

The  voting  trust 115 

Voting  trust  to  protect  company  against  absorption 

by  a  rival  company 116 

Combination  into  one  huge  corporation 117 

Corporation  to  own  stocks  of  other  corporations  ....  118 
Effect  of  such  corporations  on  amount  and  values  of 

securities 119 

Two  classes  of  combinations.  The  one  made  up  of 
former  competitors  ;  the  other  of  producers  of 
products  at  different  stages  in  manufacture. 
The  Federal  Steel  Company  an  example  of  latter 

kind 121 

ix 


Contents 

PAGE 

Different  nature  of  competition 122 

The  combination  at  times  informal 124 

In  all  cases,  the  greatest  efficiency  is  sought 125 

Methods  of  management 125 

Directors  may  gamble  in  stocks 126 

The  public  often  cannot  know  the  condition  of  busi- 
ness    126 

Directors  may  be  given  too  long  a  lease  of  power. . .  127 

Stockholders  may  be  given  too  much  power 128 

Rivals  may  thus  secure  business  secrets  or  levy  black- 
mail    128 

More  attention  to  these  evils  would  bring  about  im- 
provement in  corporation  laws 129 


CHAPTER  VIII 

Prices 

Combinations,  on  account  of  saving  the  wastes  of 
competition,  might  lower  prices  of  finished  prod- 
uct or  raise  prices  of  raw  material 130 

Important  to  know  what  effects  on  prices  they  do  in 
fact  exert.  Effects  on  prices,  good  test  of  use- 
fulness or  disadvantage 132 

The  differential,  or  margin,  shows  costs  of  manu- 
facture plus  profit 133 

Sugar 

The  grades  explained 134 

The  English  differential 134 

The  American  margin  lowered  before  formation  of 

Trust ;  increased  immediately  afterward 136 

Lowered  during  Spreckels  competition 137 

Increased  with  new  combination 137 

Lessened  under  Arbuckle  competition 138 

Trust  has  fixed  prices 138 

Has  had  little  effect  towards  steadying  prices 139 

Possible  ruin  of  refiners  under  fierce  competition 
might  have  restricted  output   enough   to   raise 

prices 140 

Under  such  industries  there  is  no  normal  competi- 
tive rate 141 

% 


Contents 

PAGE 

English  margin  steadier  than  American 142 

Mr.  Havemeyer  puts  cost  of  refining  high 143 

Margin  properly  higher  when  raw  sugar  is  high. . . .  144 
Chart  gives  no  information  regarding  effect  of  com- 
bination on  price  of  raw  sugar 145 

Whiskey 

During  existence  of  pools,  prices  of  alcohol  and 
profits  increased  ;  under  Trust,  prices  cut  to 
force  rivals  in  ;  later,  prices  increased 148 

Combinations  have  held  prices  and  profits  high  only 
for  short  periods.  Have  attempted  to  secure 
too  high  profits 149 

Present  policy 149 

Petroleum 

Export  prices  for  oil  usually  higher  than  domestic  . .     151 

Competition  in  New  York 152 

The  margin  lowered  more  rapidly  during  early  years 
of  the  industry  than  of  late.     Only  slight  de- 
crease in  the  margin  since  formation  of  Trust. .      153 
During  late  years,  an  increase  in  the  value  of  by- 
products would  justify  greater  decrease  in  the 

margin 154 

During  last  two  years  an  increase  both  in  crude  oil 

and  in  the  margin 154 

Increase  in  margin  partly  explained  by  high  cost  of 

refining,  but  profits  also  have  increased 155 

Prices  of  crude  oil  at  times  fixed  arbitrarily    155 

Greater  general  changes  usually  due  to  changes  in 

supply.     Examples 156 

Ti7i  Plate 

Rapid  increase  in  price  of  steel  due  chiefly  to  de- 
mand, especially  in  structural  steel 158 

Tin  has  also  increased  in  price 159 

During  1897-9S  the  margin  declined 160 

On  formation  of  Trust  the  margin  increased 161 

Since  March,  1S99,  while  price  has  largely  increased, 

the  margin  has  not i6l 

Chart  shows  also  effect  of  changes  in  duty 163 

xi 


Contents 

PAGE 

Steel  and  Wire 

Rapid  increase  in  prices  durinjj  1899 165 

Decided  effect  of  wire  nail  pool 166 

Increase  of  wages 167 

Increase  in  the  margin  partly  explained  by  increased 
price  of  raw  material  involving  more  expensive 

waste 167 

Chart  indicates  nevertheless  increase  in  profits 16S 

Contract  prices  differ  from  market  prices 169 

Combination  has  legal  monopoly  in  barb  wire 170 

Trust  enabled  to  take  advantage  of  market  conditions  170 


CHAPTER    IX 
The  Trusts  and  V^ages 

Savings  of  combination  a  fund  from  which  wages 

might  be  increased 171 

Trusts   have  at  times  raised  wages.     The  Whiskey 

Trust 172 

Trusts    think    it  just  to  divide  benefits  with  wage 

earners,  and  wise  to  placate  the  public  thereby.      172 

The  Sugar  Trust  and  Standard  Oil  Company  have 

paid  fair  wages 173 

The  tin  plate  and  steel  companies  have  raised  wages     173 

The  increase  due  to  the  condition  of  business  and 

demands  of  employees 174 

Power  of   the   combinations   over   laborers,  greater 

than  that  of  a  single  employer 176 

Trusts  usually  not  hostile  to  trade  unions,  but  some 

will  not  deal  with  them 176 

In  case  of    strike   a  combination  may  close  one  or 

several  plants  and  fill  orders  from  the  others  ...      177 

If  unions  are  coextensive  with   an  entire  industry, 

the  advantage  would  be  with  them 178 

The  trade  unions  may  also  combine  and  wrest  from 
the  employer  a  fit  share  of  the  savings  of  com- 
bination        178 

If  the  laborers  gain  thus,  sometimes  the  consumer 

must  furnish  the  fund 179 

Actual  disposition  of  fund  arranged  by  struggle  ....      iSo 

Public  sympathy  will  aid  the  laborer  in  a  contest  . . .      iSi 

xii 


Contents 

PAGE 

Trusts  discharge  commercial  travellers 182 

Superintendents  also  removed  by  combination 183 

Cases  of  the  officers  of  the  constituent  members  of 

the  Federal  Steel  Company,  and  of  the  American 

Steel  and  \Yire  Company 184 

Savings  from  discharged  men  may  aid  the  public  or 

the  contrary 185 

Apparently  a  larger  average  output  per  man  under 

combination 186 

Steadiness  of  employment  under  combination 187 

Labor  and  capital  may  combine — at  the  expense  of 

the  consumer 188 

The  ultimate  outcome 189 


CHAPTER  X 

Political  and  Social  Effects 

The  influence  of  corporations  upon  legislatures igo 

Blackmail  of  corporations I9I 

Is  the  fault  with  the  corporations  or  the  legislators?.      193 

The  effect  upon  our  social  organization 194 

Competitive  system  develops  individuality 195 

Combinations  save  the  weak  from  bankruptcy 196 

Creditors  fare  the  same  under  both  systems,  though 
the  feelings  of   the  bankrupt  might  be  injured 

more  by  the  Trust 197 

Excessive   competition    sometimes   produces  shoddy 
goods  to  injury  of  public,  and  leads  to  business 

depression ig8 

Difficult  for  individuals  to  start  in  business  indepen- 
dently         200 

Nepotism   doubtless    obtains  in   large  corporations. 

A  decided  evil 201 

Under  competitive  system  many  men  direct  who  are 

fit  only  to  follow  directions 202 

Subordinates  usually  are  granted  discretionary  power, 

if  they  prove  themselves  fit 203 

Example  of  a  combination  of  railroads 204 

All  officials  of  corporations  are  responsible  to  others.     205 
The  art  of  managing  superiors  develops  individuality.     205 

xiii 


Contents 

PAGE 

Corporations  urge  employees  to  dishonorable  prac- 
tices no  oftener  than  does  the  competitive  system  207 
Combination  limited  to  only  part  of  industrial  field. .  208 

Difficult  in  agricultural  products 209 

Individual  genius  independent 209 

Experience  only  can  show  the  limits  of  the  field  of 

competition 21Q 

Monopolistic  power  should  be  held  in  check  by  society  211 


CHAPTER   XI 

Legislation 

Industrial  combinations  have  both  good  and  bad  qual- 
ities      212 

The  saving  of  the  wastes  of  capital  and  of  energy 

good  qualities 213 

Enumeration  of  evils  :  to  investors  ;  to  stockholders ; 
to  consumers  through  high  prices  and  through 
low  prices  for  raw  material ;  to  the  wage-earners  ; 
to  the  State  through  political  corruption  ;  to 
business  community  through  difficulty  of  enter- 
ing business,  or  the  employment  of  unscrupulous 
methods,  though  individuals  managing  corpora- 
tions are  no  worse  morally  than  others.  Greater 
social  effect  of  evil  practice  by  head  of  great  cor- 
poration       214 

Let-alone  policy 217 

Present  laws,  aiming  at  destruction 217 

Such  laws  have  not  prevented  combinations,  but  have 

probably  changed  the  form  of  organization.  ...     2x8 
Some,  if  interpreted  strictly,  would  have  been  harm- 
ful, but  the  courts  have  generally  been  conser- 
vative        218 

Special  advantages  should  be  removed 219 

Discriminations  in  railroad  rates  can  be  checked  by 

amending  the  Interstate  Commerce  Law 220 

The  patent  laws  might  be  improved 220 

Removal  of  the  tariff 221 

Amendments  to  corporation  laws  holding  directors 

and  promoters  to  strict  responsibility  desirable.     222 

xiv 


Contents 

PAGB 

Publicity  more  satisfactory,  if  properly  managed. . . .  222 

Mr.  Coler's  plan;  comments 223 

Publicity  would  protect  the  investors  ;  the  stock- 
holders ;  the  public,  by  encouraging  competi- 
tion ;  the  laborer 224 

Governor  Roosevelt's  plan  gives  another  view  of  pub- 
licity needed 224 

Mr.  Bryan's  plan 224 

Constitutional  amendment  not  discussed 225 

A  few  large  States  could  accomplish  much 225 

Publicity  will  give  basis  for  more  vigorous  action. . .  226 


CHAPTER   XII 
Industrial  Combinations  in  Europe 

Study  of  European  combinations  confirms  conclu- 
sions already  reached 228 

Form  and  extent  of  European  combinations 228 

Causes   of   combinations   substantially  the  same   in 

Europe  as  in  the  United  States 229 

Local  conditions  in  Europe  which  tend  to  check  the 
growth  of  combinations :  (a)  business  of  certain 
manufacturing  firms  to  a  certain  extent  hered- 
itary ;  {/>)  disinclination  of  individual  manu- 
facturers to  subordinate  themselves  to  a  single 
managing  head 230 

European  law  courts  have  generally  upheld  contracts 

limiting  output  and  establishing  a  fixed  price  . .     232 

Usual  form  of  European  combinations  a  central  sell- 
ing bureau,  which  has  power  to  fix  the  quota  of 
production  and  sell  the  product  of  its  members.     233 

Plan  of  operation  in  case  of  Austrian  and  German 

sugar  combinations 234 

Comparatively  greater  degree  of  independence  al- 
lowed managers  of  European  combinations  ....     234 

Corporate  form  of  organization  exceptional,  except 

in  case  of  English  combinations 235 

Unique  character  of  brass  bedstead  combination  in 
Birmingham,  England,  A  coalition  between 
employers  and  employees 235 

XV 


Contents 


PAGE 

Capitalization  not  so  high,  relatively,  in  Europe  as  in 

the  United  States 239 

Domestic  prices  slightly  increased  and  steadied  by 

the  combinations 240 

Export  prices  usually  lower  than  domestic 241 

Relation  of  tariff  to  export  prices 243 

Relations   between   combinations  and  labor   unions 

are  generally  friendly 245 

Public  opinion  in  Europe  toward  combinations 246 

German  coal  syndicate  in  relation  to  the  high  price 

of  coal 247 

Recent   English    legislation    provides   for   enforced 

publicity  in  corporate  affairs 248 

Attitude  of  English  courts  toward  restraint  of  trade .     249 

French  Penal  Code  affects  form  of  combinations  in 

France ; 249 

German  courts  uphold  agreements  to  prevent  ruinous 

competition 250 

Public  opinion  in  Austria  more  hostile  toward  com- 
binations       251 

Measures  recommended  by  Department  of  Trade 
and  Industry  for  regulation  of  Austrian  com- 
binations        252 

Opinion  prevalent  in  Europe  that  combinations  should 

be  recognized  as  normal  institutions  in  industry-     254 


APPENDIX   A 
Suggestions  at  Chicago  Trust  Conference 

Unlawful  conspiracies  in  restraint  of  trade  should  be 

declared  illegal  by  a  statute,  well  enforced 258 

Corporations  should  be  organized  only  under  careful 

government  control,  and  laws  should  be  uniform.     258 

Objects  of  corporations  should  be  limited  and  clearly 

defined 259 

Issue  of  stock  and  bonds  should  be  carefully  safe- 
guarded       259 

Stock  watering  should  not  be  allowed 259 

There  should  be  governmental  supervision  of  cor- 
porations, with  detailed  reports  ;  yet  proper 
business  secrets  should  be  respected 259 

xvi 


Contents 


APPENDIX   B 

Preliminary    Report    of   the    United    States 
Industrial  Commission 

PAGE 

Extent  of  inquiry 261 

Trusts  have  become  fixtures  in  business  life  ;  their 
power  for  evil  should  be  destroyed,  their  means 
for  good  preserved 262 

Organizers  should  be  prevented  from  deceiving  the 
public  by  (a)  furnishing  details  of  their  organiza- 
tion ;  (b)  being  held  responsible  ;  (c)  expressing 
in  certificate  of  incorporation  powers  and  limita- 
tions of  directors  and  officers 262 

Directors  should  report  to  stockholders. . .  = 263 

Stockholders  should  see  certain  records 263 

Stockholders  should  receive  lists  of  members  before 

annual  meeting 263 

Large   corporations   should   publish   annual  report, 

audited,  subject  to  government  inspection 264 

To  prevent  railroad  discriminations.  Interstate  Com- 
merce Commission  should  be  strengthened  :  (a) 
by  being  authorized  to  prescribe  methods  of 
accounting  ;  (b)  by  having  its  decisions  made 
operative  till  reversed  ;  (c)  by  being  authorized 
to,>prescribe  freight  classifications  ;  (d)  penalties 
should  be  fines  against  carrier,  not  imprisonment 
of  officials 264 


APPENDIX  C 

Plan    of    Bird  S.    Coler    for    Regulation   of 
Trusts. 

Existence  of  corporations  should  be  limited  in  time.  267 
Business   requiring  secrecy  of  management  should 

not  be  incorporated 267 

Securities  should  be  issued  only  for  actual  value,  and 

not  put  on  market  till  after  one  business  year. . .  267 
Places  of  business  named  not  to  be  changed  without 

consent  of  State 268 

Accounts  to  be  open  to  public  officials 268 

xvii 


Contents 

PAGE 

Nature  of  business  to  be  limited 268 

Laws  requiring  publicity  to  be  uniform  throughout 

the  Union 269 

The  right  of  State  unquestioned,  and  each  State  best 

qualified  to  legislate  for  itself 269 

APPENDIX   D 

New  York  Companies'  Act 

Powers  and  purposes 270 

Registered  office  and  agent 272 

Certificate  of  incorporation 274 

Incorporation  fees 276 

Amendment  of  certificate 277 

Reincorporation  under  act 278 

Act  optional 279 

Directors 279 

Duties  of  directors  regarding  election 280 

Officers 282 

Meetings 284 

Stock  and  certificates 285 

Penalties  for  delinquent  officials 289 

Powers  of  corporation  to  buy  and  sell  stock 290 

Dividends 291 

Promotion 291 

Balance  sheet 296 

Duties  of  auditors 299 

Private  balance  sheet 301 

Annual  report 302 

Merger  and  dissolution 304 

Monopoly  act  not  repealed 305 

APPENDIX  E 

Plan    of   William   J.    Bryan    for    Regulation 
OF  Trusts 

A  Congressional  act  requiring  a  license   issued  by 

some  power  created  by  Congress 306 

Without  license  no  corporation  permitted  to  do  busi- 
ness outside  its  own  State 306 


Contents 


PAGB 

License  to  be  gp-anted  only  on  conditions  that  will — 

Prevent  watering  of  stock 306 

Prevent  monopoly 306 

Provide  for  publicity 306 

License  may  be  repealed 306 

Willing  to  preserve  benefits  of  corporations  and  take 

away  possibilities  of  harm 307 


APPENDIX  F 
The  United  States  Steel  Corporation 

Organization,    capitalization,    and    charter    of    the 

United  States  Steel  Corporation 308 

Liberalizing   provision    concerning  voting   of   stock 

passed  by  New  Jersey  legislature 308 

Combination  is  in  form  of  a  single  corporation  own- 
ing stock  of  constituent  companies 309 

Comparison  of  stocks  of  constituent  members  of 
United  States  Steel  Corporation  and  shares 
given  in  exchange  therefor 310 

Cost  of  purchasing  the  Carnegie  holdings 313 

Chief  advantages  of  the  corporation  due  to  its  con- 
trol of  raw  materials  and  transportation  facilities, 
and  the  best  possible  utilization  of  its  different 
plants 314 

Bibliographical  Note 317 

Index 319 


xix 


Diagrams 


FACING  PACK 

Prices  of  Sugar i33 

Prices  of  Spirits  and  Corn        ....  146 

Prices  of  Crude  and  Refined  Oil    .        .        .  150 

Prices  of  Steel,  Tin,  and  Tin  Plate        .        .  i57 
Prices     of    Crude    and    Finished    Iron    and 

Steel 165 


The    Trust    Problem 


The    Trust    Problem 


INTRODUCTION 

The  information  here  presented  has  been 
gathered  during  the  last  twelve  years,  chiefly 
from  personal  investigation  of  large  corporations 
through  contact  v/ith  their  officers  and  work- 
men, their  opponents,  dealers  in  their  goods,  and 
also  from  such  printed  statistical  data  as  seemed, 
on  the  whole,  to  be  trustworthy.  The  chief 
opportunity  has  been  in  the  investigation  car- 
ried on  by  the  United  States  Industrial  Com- 
mission during  the  past  year,  though  it  should 
be  understood  that  the  Commission  is  in  no 
way  responsible  for  opinions  here  expressed.  It 
has  been  intended  to  present  mainly  facts,  and 
the  judgments  of  those  who,  from  their  intimate 
connection  with  the  corporations  under  discus- 
sion, either  as  members,  rivals,  or  otherwise, 
3 


The  Trust  Problem 

are  thoroughly  conversant  with  the  facts  re- 
garding them.  Besides  the  information  so 
often  courteously  given  by  business  men,  Pro- 
fessors Hull  and  Powers  of  Cornell  University, 
and  the  author's  wife  have  kindly  read  the 
text  and  offered  many  most  valuable  sugges- 
tions. 

The  book  is  intended  to  be  a  brief  compen- 
dium of  industrial  conditions,  so  far  as  they 
affect  industrial  combinations  particularly  or  are 
affected  by  them,  together  with  some  opinions  re- 
garding the  influences  which  have  brought  about 
present  conditions,  and  the  probable  trend  of 
future  development.  Some  judgments  regarding 
possible  remedies  for  evils  which  have  arisen  in 
connection  v/ith  these  combinations  are  offered 
in  conclusion.  This  study  is  not  intended  pri- 
marily for  the  student  of  economic  theory.  As  a 
brief  impartial  statement  of  facts  and  principles, 
it  is  hoped  that  it  will  prove  useful  to  the  many 
busy  men  who  have  not  the  leisure  needed  to 
gather  the  material,  but  who,  wishing  to  do  their 
duty  as  citizens  intelligently,  will  welcome  a 
brief  compendium  which  may  to  a  certain  degree 
serve  them  as  a  basis  for  judgment.  It  is  hoped 
to  make  in  the  not  distant  future  a  more  com- 


Introduction 

plete  study,  which  shall  embody  the  results  of 
European  experience  and  which  shall  deal  more 
fully  with  the  whole  problem  of  monopoly. 

Considering  the  nature  and  purpose  of  this 
book,  it  has  not  been  thought  best  to  cite  author- 
ities for  many  of  the  statements  made.  When- 
ever they  are  taken  from  the  testimony  before 
the  United  States  Industrial  Commission,  Dr. 
Durand's  admirable  index  to  that  report  will  be 
available  to  all  who  care  to  verify  the  citations. 
In  many  cases,  however,  information  given  has 
been  confidential  in  its  nature,  though  on  that 
account  no  less  trustworthy.  Such  information 
has  dealt  at  times  with  practices  that  in  some 
way  have  come  under  public  condemnation, 
such  as  promoter's  rewards,  freight  discrimina- 
tions, commissions  to  bank  officers,  and  stock 
speculations.  In  other  instances  it  has  con- 
cerned the  business  of  special  combinations, 
and  has  formed  the  basis  for  judgments  when 
the  facts  themselves  were  matters  of  only  pri- 
vate concern. 

The  appendix  contains  some  documents 
which  may  prove  helpful  in  enabling  read- 
ers to  make  more  definite  and  specific  their 
ideas  regarding  legislation  that  may  possibly  be 
5 


The  Trust  Problem 

needed.  The  admirable  summary  of  conclu- 
sions made  by  Judge  Howe,  the  permanent 
Chairman  of  the  Chicago  Conference  on  Trusts, 
regarding  certain  suggested  methods  for  the  so- 
lution of  the  trust  problem,  is  a  noteworthy 
document  as  presenting  what  were  in  effect  the 
opinions  which  could  be  agreed  upon  by  sub- 
stantially all  the  membership  of  that  great  Con- 
ference, representing  so  many  conflicting  views 
and  interests.  The  Report  of  the  United  States 
Industrial  Commission  is  a  most  carefully  con- 
sidered expression  of  opinion  and  recommenda- 
tions by  a  non-partisan  body  of  men,  made  after 
an  investigation  extending  over  a  year's  time. 
Though  it  does  not  claim  to  be  final,  never- 
theless it  was  the  result  of  most  careful  study 
and  deliberation,  and  is  entitled  to  the  promi- 
nent position  which  has  been  given  it  by  think- 
ing men  of  all  classes.  The  Proposed  New 
York  Companies'  Act:  1900,  drafted  to  carry 
out  the  suggestions  made  in  Governor  Roose- 
velt's message  regarding  Trust  legislation,  is  the 
one  formulation  into  a  definite  bill  of  the  opin- 
ions of  many  persons  who  have  thought  it  pos- 
sible to  separate  sharply  between  the  good  and 
evil  arising  from  the  modern  organizations  of 
6 


Introduction 

capital,  and  who  are  ready  to  encourage  the 
good  while  checking  the  tendencies  toward  evil, 
chiefly  through  compelling  the  corporations  to 
carry  on  their  operations  much  more  than  at 
present  under  the  public  eye.  While  in  its 
preparation  the  author  was  assisted  by  several 
lawyers  and  business  men,  he  took  alone  the 
responsibility  of  determining  just  what  the  bill 
should  contain,  and  has,  therefore,  in  con- 
densing part  of  it  and  in  determining  what 
portions  of  it  should  be  printed  in  full,  felt  at 
liberty  to  make  some  slight  modifications  in  the 
bill  as  reported  by  the  Judiciary  Committee  of 
the  New  York  Senate.  The  summary  of  the 
plans  of  Mr.  Coler  and  Mr.  Bryan  are  given  • 
like  the  others  in  their  own  words  without  the 
arguments  which  accompanied  them.  The  in- 
sistence of  so  many  prominent  investigators  of 
the  subject  upon  publicity  as  a  remedy  for  the 
evils  of  industrial  combination  makes  it  the 
more  to  be  regretted  that  there  is  only  one  put 
into  the  form  of  a  bill.  Were  the  others  in 
like  form,  the  points  of  likeness  and  difference 
could  be  more  readily  seen,  and  the  best  sug- 
gestions from  each  more  easily  chosen. 

The    purpose    of   the    book    forbids    giving 
7 


The  Trust  Problem 

much  space  to  exact  definitions  and  classi- 
fication, but  under  the  word  "  Trust,"  as  ex- 
pressed in  the  title,  are  included  especially  those 
organizations  of  capital  which  have  been  called, 
whether  wisely  or  not,  "  Capitalistic  Monopo- 
lies." Neither  railroads  nor  telegraphs  nor 
other  public  service  corporations  are  especially 
considered;  but,  in  general,  ''Trusts*'  are 
taken  to  mean  manufacturing  corporations  with 
so  great  capital  and  power  that  they  are  at  least 
thought  by  the  public  to  have  become  a  menace 
to  their  welfare,  and  to  have,  temporarily  at 
least,  considerable  monopolistic  power. 

An  effort  has  been  made  to  explain  these 
Trusts,  and  not  to  rest  content  with  calling  them 
the  product  of  evolution,  and  assuming  that, 
therefore,  they  are  both  inevitable  and  in  the  long 
run  helpful  rather  than  harmful.  In  a  letter 
written  but  a  few  days  before  his  death,  the  late 
Gen.  Francis  A.  Walker,  commenting  upon  this 
fatalistic  attitude  of  some  of  his  friends  who  were 
satisfied  to  call  Trusts  the  product  of  evolution, 
remarked  that  he  supposed  the  modern  train 
robber  was  merely  a  normal  development  of  the 
old-fashioned,  commonplace  highwayman,  and 
continued  :  "Some  evolution  is  worthy  of  only 
8 


Introduction 

condemnation.  Some  evolutionists  ought  to  be 
hanged."  With  that  view  of  economic  evolu- 
tion, as  something  requiring  further  explanation 
before  being  either  approved  or  condemned, 
the  book  has  been  written. 

The  first  two  or  three  chapters,  which  discuss 
the  modern  business  conditions  leading  to  the 
formation  of  combinations,  necessarily  show  their 
favorable  side  and  the  evils  of  the  competitive 
system  most  strongly;  later  chapters,  depicting 
their  methods  of  work  and  their  effects,  show 
most  clearly  the  evil  in  them. 

It  is  hoped  that  the  prejudices  which  are 
common  to  all  have  not  prevented  a  reasonable 
degree  of  fairness  in  seeing  and  depicting  both 
sides  of  this  question,  the  good  as  well  as  the 
evil.  While  it  is  probable  that  the  book  has 
been  written  chiefly  from  the  view  point  of  the 
economist,  it  has  been  the  intention  not  to  ignore 
that  of  the  publicist  and  of  the  citizen,  who  think 
of  the  practical  as  well  as  of  the  desirable  in 
legislation,  and  who  keep  in  mind  the  social  and 
moral  as  well  as  the  business  welfare  of  the 
people. 


CHAPTER   I 
competition:    its  nature 

It  is  impossible  to  understand  why  there  has 
been  of  late  so  strong  a  tendency  toward  the  for- 
mation of  industrial  combinations,  unless  one 
first  sees  clearly  the  economic  conditions  out  of 
which  they  have  arisen.  A  brief  study  of  the 
competitive  system  is  therefore  placed  in  the 
foreground. 

It  has  been  a  common  assumption  among 
economic  writers  that  competition  is  free,  and 
that  there  is  no  element  of  combination  among 
dealers  or  manufacturers.  Most  writers,  of 
course,  have  been  well  aware  of  the  fact  that  in 
actual  business  dealings  this  assumption  is  not 
true,  but  it  has  seemed  wise  to  make  it  and  to 
take  it  as  a  basis  for  argument  in  their  deductive 
reasoning.  Too  many  of  them,  unfortunately, 
in  their  conclusions  have  forgotten  that  it  was 
mere  assumption,  made  for  logical  reasons.  The 
most  vigorous  opponents  of  industrial  combina- 


Competition :    Its  Nature 

tion  have,  in  like  manner,  tacitly  at  least,  often 
made  the  same  assumption ;  but  it  is  so  far  from 
the  truth  in  the  actual  business  life  of  to-day 
that  its  adoption  is  certain  to  lead  to  misunder- 
standing regarding  the  nature  of  industrial  com- 
bination. 

The  "  friction  "  of  competition  is  most  read- 
ily noticed  in  the  retail  trade.  Careless  cus- 
tomers, ignorant  of  prices,  call  for  goods  which 
please  them,  and  often  purchase  without  striv- 
ing to  get  the  lowest  price.  Others,  from  habit 
or  feelings  of  friendship,  deal  regularly  with  one 
merchant  without  comparison  of  his  prices  with 
those  of  his  rivals.  The  convenient  location 
of  his  store,  or  his  pertinacity  in  soliciting  cus- 
tom, often  enables  a  dealer  to  sell  for  more  than 
the  lowest  market  price,  so  that  competition, 
from  the  point  of  view  of  price,  is  far  from  be- 
ing free,  or  at  least  from  being  efficient. 

A  more  or  less  formal  understanding  among 
dealers  also  checks  the  freedom  of  competition, 
and,  in  fact,  introduces  an  element  of  combina- 
tion quite  similar  in  kind,  though  less  in  im- 
portance, than  that  found  among  large  manu- 
facturers. In  many  small  cities  there  exist 
butchers'    associations,     grocers'     associations, 


The  Trust  Problem 

associations  of  hardware  dealers,  of  druggists, 
etc.  Usually  without  formal  contract  these 
organizations  substantially  maintain  a  general 
level  of  prices  throughout  the  city,  besides  fur- 
nishing to  all  of  the  different  members  the  op- 
portunity of  reading  trade  papers,  of  learning 
the  condition  of  the  wholesale  markets,  and 
calling  to  their  attention  other  matters  of  com- 
mon interest.  In  such  cities  and  villages  a 
trader  from  the  outside,  particularly  if  he  at- 
tempts to  peddle  his  goods  from  house  to  house, 
is  sure  to  be  met  with  united  action  of  all  the 
dealers.      Industrial  combination  has  begun. 

Even  without  these  associations,  grocery 
stores,  dry-goods  houses,  butcher  shops,  and 
other  retail  mercantile  establishments  in  the 
same  neighborhood  usually  have  the  same  prices 
for  similar  goods.  Occasionally  one  will  cut 
the  price  of  some  article  which  he  employs  as 
a  leader  to  attract  customers  to  his  store,  and 
this  will  be  counteracted  by  a  similar  cut  on 
that  or  other  single  articles  by  his  competitors. 
The  main  line  of  prices,  however,  under  usual 
conditions,  remains  substantially  the  same  with- 
out vigorous  competition.  There  is  a  tacit 
friendly  understanding  that  living  rates  shall  be 


Competition  :    Its  Nature 

maintained,  and  these  rates  will  enable  the  most 
skilful  to  make  good  profits. 

At  times,  indeed,  in  order  to  avoid  the  name 
of  monopolist,  a  large  dealer  in  a  small  village 
may  even  encourage  nominal  competition.  It 
is  not  uncommon  for  a  large  general  store  to 
furnish  goods  at  considerably  less  than  the  usual 
retail  price  to  some  small  dealer  on  the  outskirts 
of  the  town,  who,  while  asking  the  same  price 
as  the  large  dealer,  can  still  reserve  profit  enough 
to  keep  himself  in  business,  and  yet  to  appear  in 
apparent  competition  with  a  rival.  In  one  case 
which  was  noticed  in  a  Western  State,  a  wealthy 
man  who  had  established  large  stores  in  several 
villages  for  the  supply  of  their  inhabitants  as 
well  as  of  mining  and  lumbering  camps  in  the 
vicinity,  found  it  advisable  to  take  active  meas- 
ures to  bring  into  each  of  the  villages  one,  and 
in  some  cases  more  than  one,  small  dealer,  whom 
he  supplied  with  goods  at  wholesale  rates,  in 
order  that  apparent  competition  might  be  main- 
tained and  real  competitors  be  discouraged  from 
beginning  business. 

Of  course  it  is  evident  that  in  retail  trade,  as 
in  the  case  of  large  manufacturing  establish- 
ments, if  one  merchant  goes  too  far  in  the  way 
13 


The  Trust  Problem 

of  securing  high  profits  by  what  are  considered 
unfair  means,  or  of  extending  his  trade  by  lower- 
ing prices,  the  tacit  understanding  will  no  longer 
hold  but  will  develop  into  vigorous  hostility, 
shown  by  actual  cutting  of  prices  to  rates  ruinous 
for  the  less  skilful. 

These  understandings  ar^  not  so  common 
among  wholesale  traders  or  manufacturers; 
neither  is  there  so  great  a  probability  of  widely 
varying  prices  for  certain  classes  of  goods  being 
secured  by  different  dealers  in  one  community. 
The  margin  of  profit  is  less  in  the  v/holesale 
trade;  purchasers  and  salesmen  both  are  much 
better  informed  regarding  the  state  of  the  mar- 
ket ;  each  separate  sale  being,  relatively  speaking, 
large,  is  more  important.  For  these  reasons 
and  others,  the  competition  is  much  more  nearly 
free,  but  the  element  of  combination  suggested 
still  exists. 

Among  manufacturers,  the  nature  of  the  in- 
dustry itself  is  of  much  importance  in  determin- 
ing the  character  of  the  competition  and  the 
trend  toward  combination.  If  the  goods  manu- 
factured are  of  a  kind  whose  quality  is  uniform 
and  may  be  easily  tested,  competition  becomes 
almost  solely  a  matter  of  price.  Especially  is 
14 


Competition  :    Its  Nature 

this  true  if  the  article  is  one  which  is  sold  in 
large  quantities.  Salt  in  many  States  has  its 
quality  tested  by  a  government  inspector,  and 
is  always  sold  under  the  grades  thus  fixed. 
The  quality  of  sugar  is  easily  determined  by 
the  polariscope  test,  and  all  large  buyers  have 
the  test  made.  Spirits,  in  like  manner,  are  sold 
on  the  basis  of  proof  spirits  or  of  pure  spirits, 
as  the  case  may  be,  and  the  test  of  any  special 
stock  is  easily  made.  Similar  statements  may 
be  made  regarding  refined  petroleum.  Among 
such  goods,  if  competition  exists,  it  must  be  a 
competition  in  price. 

On  the  other  hand,  if  the  quality  of  goods 
cannot  be  easily  tested,  and  especially  if  the 
goods  are  sold  in  small  quantities,  which  can 
readily  be  put  into  packages  for  the  use  of  retail 
customers,  brands  and  trade-marks  are  usually 
adopted  by  manufacturers.  In  such  cases, 
competition  does  not  become  necessarily  one 
which  forces  prices  down,  but  may  readily  be 
simply  a  contest  in  advertising.  Most  buyers  do 
not  test  the  quality  of  Pears'  soap  to  see  whether 
it  is  better  than  that  of  a  rival  brand.  Its 
manufacturers  are  not  likely  to  cut  the  price  in 
order  to  increase  its  sale.  It  pays  better  to  in- 
15 


The  Trust  Problem 

crease  the  expense  of  advertising.  The  Royal 
Baking  Powder  may  be  perfectly  pure,  but  the 
housewife  who  insists  upon  using  it  has  prob- 
ably never  tested  it  in  comparison  with  other 
brands.  She  has  been  attracted  by  the  adver- 
tisement, has  found  the  baking  powder  satis- 
factory, and  insists  upon  buying  it.  It  is  a 
noteworthy  fact  that  the  largest  of  the  earlier 
industrial  combinations  in  the  United  States 
were  those  among  the  manufacturers  of  petro- 
leum, salt,  sugar,  and  spirits,  goods  of  which 
the  quality  is  uniform,  and  is  tested  by  large 
buyers.  Combinations  among  manufacturers  of 
articles  sold  chiefly  under  trade-marks  known 
by  retail  buyers  are  of  comparatively  late  devel- 
opment. In  the  first  case,  a  combination  would 
be  made  to  prevent  a  cut  in  prices;  in  the 
second,  to  save  the  costs  of  advertising. 

If  the  amount  of  capital  which  must  of  neces- 
sity be  invested  in  a  fixed  plant  for  the  success- 
ful production  of  any  class  of  goods  is  large,  the 
nature  of  the  competition  differs  materially  from 
that  of  an  industry  in  which  a  small  amount  of 
fixed  capital  is  sufficient  to  enable  one  to  work 
to  good  advantage.  In  the  first  instance  the 
number  of  competitors  is  likely  to  be  much 
i6 


Competition  :    Its  Nature 

smaller  than  in  the  latter.  The  loss  arising  from 
a  temporary  suspension  of  manufacture  is  very 
much  larger,  both  absolutely  and  relatively,  since 
it  usually  involves  greater  loss  to  machinery, 
more  of  a  break  in  a  complete  organization  of 
worklngmen  in  different  departments,  which  it 
may  take  much  time  to  bring  together  again  into 
harmonious  working  order,  a  break  with  a  larger 
circle  of  customers  v\'ho  are  more  difficult  to  re- 
gain; and,  in  consequence,  competition  in  these 
industries,  if  it  becomes  fierce,  is  likelv  to  bring 
disaster  to  the  industry  as  a  whole. 

From  three  to  five  millions  of  dollars  are 
required  to  build  and  run  satisfactorily  a  sugar 
refinery.  In  the  whole  United  States,  only  some 
forty  sugar  refineries  were  in  existence  before 
the  formation  of  the  Sugar  Trust  in  1887.  It 
was  not  easy  for  a  sugar  refiner  who  felt  the 
pressure  of  competition  to  close  his  establish- 
ment for  the  time  being  and  later  to  start  up 
again.  He  might  better  for  an  interval  carry  on 
the  business  at  a  loss.  Competition  among  the 
refiners  finally  became  so  fierce  that  some  eigh- 
teen of  them  had  gone  into  bankruptcy  before 
combination  into  the  Trust  finally  abated  for 
the  time  the  fury  of  the  contest. 
2  17 


The  Trust  Problem 

An  industry  which  requires  but  small  capital 
to  carry  it  on,  will  encourage  hundreds,  or 
more  likely  thousands  or  tens  of  thousands,  of 
individuals  to  engage  in  it.  The  great  variety 
of  circumstances  surrounding  them,  and  the 
great  differences  in  individual  skill  of  the  nu- 
merous competitors  make  it  likely  that  some 
few  will  be  continually  on  the  verge  of  bank- 
ruptcy, and  that  from  time  to  time  individuals 
will  be  falling  over  under  the  pressure  of  com- 
petition. The  elimination  of  these  least  skilful 
or  least  fortunately  situated  competitors,  whose 
manufacturing  is  carried  on  at  the  greatest  cost, 
does  not  produce  any  wide-spread  depression  in 
business,  but  serves  rather  to  elevate  the  general 
average  of  skill  in  the  industry.  While  the  in- 
dividual unfortunates  may  perhaps  be  sympa- 
thized with  in  their  misfortunes,  their  loss  is, 
after  all,  a  gain  to  industrial  society,  since 
thereby  the  plane  of  production  is  raised.  It 
is  the  consideration  mainly  of  industries  of  this 
type  that  has  given  rise  to  theories  of  normal 
price,  a  marginal  price,  etc.,  as  a  safe  basis  for 
economic  reasoning,  and  many  writers  in  speak- 
ing of  competition  think  of  this  kind  only. 
Attention  will  be  called  later  to  differences  of 
i8 


Competition  :    Its  Nature 

the  two  kinds  of  competition,  or,  rather,  of  com- 
petition among  industries  of  these  two  kinds, 
in  the  effects  on  prices. 

On  the  other  hand,  industries  that  must  be 
conducted  on  a  large  scale  with  enormous  cap- 
ital naturally  call  into  the  business  only  a  few 
highly  skilled  managers.  The  circumstances 
and  skill  of  the  different  competitors  may  be  so 
nearly  equal  that  competition  will  eventuate, 
not  in  the  elimination  of  some  few  while  the 
majority  are  still  making  profits,  but  rather  in 
a  depression  of  the  entire  business,  so  that  only 
the  very  few  most  skilful  or  best  situated  will 
be  making  any  profit  at  all,  while  the  others 
still  struggling  along  may  be  losing  money  for 
a  long  period  before  they  finally  yield.  Indeed, 
the  result  may  well  be  that  for  a  considerable 
length  of  time  all  will  be  running  at  a  loss;  and 
such  competition  among  so  many  strong  rivals 
often  produces  at  the  end  shoddy  goods,  reckless 
financiering,  and  speculative  methods  In  business 
which  are  a  menace  to  business  prosperity. 
Competition  of  this  nature,  resulting  in  a  general 
depression  of  business,  or  In  the  bankruptcy  of 
a  large  portion  of  those  engaged  In  the  Industry, 
with  the  consequent  losses  to  their  creditors,  Is 
19 


The  Trust  Problem 

not  immediately  at  least  an  economic  gain  to 
society,  although  prices  may  be  low,  but  is 
rather  on  the  whole  an  industrial  loss,  although 
one  must  not  forget  that  as  yet  it  is  in  these 
struggles  that  captains  of  industry  pass  their 
cadetship.  It  is  in  this  class  of  industries,  in 
which  the  amount  of  fixed  capital  in  the  plants 
must  of  necessity  be  large,  and  the  competition 
of  necessity  fierce,  and  generally  turning  upon 
price,  that  combination  is  not  merely  more 
likely  to  be  found,  but  is  probably  more  nearly 
justified,  than  in  the  case  of  those  industries 
whose  successful  management  requires  invest- 
ment of  but  a  comparatively  small  capital. 


20 


CHAPTER   II 

THE    WASTES    OF    COMPETITION 

Contrary  to  the  popular  opinion,  competitive 
prices  are  frequently,  if  not  usually,  high  prices. 
In  industries  of  the  kind  mentioned  in  the  pre- 
ceding chapter  in  which  competition  turns  almost 
solely  upon  price,  the  competitive  price  will  nat- 
urally be  low;  but  in  the  other  cases  in  which 
the  cost  of  selling  becomes  an  important  factor 
in  determining  the  price,  competitive  prices  are 
certain  to  be  high  as  compared  with  the  cost  of 
manufacture.  So,  too,  if  there  is  much  loss  from 
production  on  a  small  scale,  prices  will  be  high 
as  compared  with  what  they  might  be  if  carried 
on  in  great  establishments,  although  this  added 
cost  may  or  may  not  be  a  matter  of  a  competitive 
waste.  One  ought  not  to  lose  sight  of  the  dis- 
tinctions between  production  on  a  great  scale 
and  production  under  monopoly,  and  the  wastes 
of  competition  as  compared  with  those  of  pro- 
duction on  a  small  scale.  Both  tend  toward 
combination. 

21 


The  Trust  Problem 

Of  course  it  is  not  the  intention  to  assert 
that  competitive  prices,  even  in  these  indus- 
tries in  which  one  may  contrast  competition 
and  monopoly,  are  always  as  high  as  monopoly 
prices,  although  that  might  in  many  cases  be 
true  if  one  speaks  of  actual  prices  instead  of 
using  both  expressions  in  a  technical  sense.  It 
is  probable  that  ladies'  hats  and  other  articles 
in  the  choice  of  which  fashion,  personal  tastes, 
and  the  skill  of  salesmen  enter  largely  as  factors, 
sell  for  higher  prices  under  a  competitive  regime 
than  would  be  possible  if  a  monopoly — even  a 
legal  monopoly — were  given  to  one  establish- 
ment. As  will  be  noted  later,  however,  such 
industries  cannot  readily  be  monopolized,  unless 
one  wishes  to  speak  of  personal  skill  or  taste  as 
a  kind  of  monopoly.  Before  noting  the  special 
wastes  of  competition  which  often  make  com- 
petitive prices  high,  one  should  note  that  it  is 
intended  in  this  connection  to  compare  the  actual 
prices  received  in  the  market  with  the  cost  of 
manufacture,  not  with  the  cost  of  production  and 
sale  in  the  market. 

Manufacturers  frequently  say  that  the  chief 
difficulties  to  be  overcome  in  business  are  those 
of  securing  a  market  rather  than  those  of  manu- 


The  Wastes  of  Competition 

facturing.  This  ordinarily  means  that,  in  order 
to  make  sales  in  competition  with  their  rivals, 
it  is  necessary  to  take  much  care  and  to  go  to 
great  expense  in  order  to  bring  their  goods  to 
the  attention  and  the  favor  of  their  customers. 
If,  through  combination  among  different  manu- 
facturers, this  competitive  bidding  of  one  against 
the  other  could  be  obviated,  it  is  evident  that  a 
large  part  of  this  expense  could  be  saved. 

Wherever  it  is  necessary  for  merchants  to 
make  selection  of  goods  in  order  that  they  may 
suit  the  tastes  and  needs  of  their  customers,  it 
is  desirable  usually  for  them  to  see  the  goods 
before  making  purchases.  Under  those  circum- 
stances either  the  merchant  himself  must  visit 
the  manufacturer  or  jobber  or  else  an  agent  of 
the  manufacturer  must  visit  the  merchant.  Of 
late  years  it  has  become  customary  for  travel- 
ling salesmen  with  samples  of  goods  to  visit 
merchants,  in  order  to  afford  them  this  oppor- 
tunity of  seeing  goods  before  purchasing,  and  of 
selecting  those  which  are  likely  to  suit  the  tastes 
of  their  customers.  If  one  manufacturer  of 
muslins  or  hats  sends  a  travelling  salesman  to 
visit  the  retail  dealers  throughout  a  certain  sec- 
tion of  the  country,  rival  manufacturers  must  in 
23 


The  Trust  Problem 

some  similar  way  bring  their  goods  to  the  per- 
sonal attention  of  the  merchants,  or  else  sales 
will  be  lost.  The  result  is  that  several  sales- 
men from  as  many  different  houses  travel  over 
the  same  routes  and  show  goods  to  the  same 
merchants.  If  a  combination  among  the  manu- 
facturers in  the  same  line  can  be  made,  one 
salesman  could  show  all  of  the  goods  of  the 
combination  to  all  of  the  different  merchants 
substantially  as  well  as  the  entire  number  could 
do  before  the  combination  was  made.  When 
the  American  Steel  and  Wire  Company  was 
formed,  it  was  on  this  account  found  possible  to 
dispense  with  the  services  of  nearly  two  hundred 
salesmen.  When  one  of  the  later  whiskey  com- 
binations was  formed,  about  three  hundred 
travelling  salesmen  could  be  spared  without  the 
business  being  in  any  way  neglected. 

Moreover,  when  competing  salesmen  visit  a 
merchant  it  is  often  true  that  the  more  plausi- 
ble or  skilful  salesman  succeeds  in  taking  the 
order,  although  his  goods  may  possibly  be  in- 
ferior to  those  of  his  rival.  The  best  salesmen, 
therefore,  are  often  thoroughly  trained,  experi- 
enced men  who  command  high  salaries.  When, 
however,  owing  to  the  formation  of  a  combina- 
24 


The  Wastes  of  Competition 

tion,  the  merchant  has  but  one  manufacturer 
from  whom  to  buy,  it  is  not  necessary  that  he 
become  a  victim  of  eloquent  persuasion.  It  is 
sufficient  if  he  see  the  different  lines  of  goods 
with  prices  attached,  and  take  his  choice.  A 
much  less  skilful  salesman,  therefore,  provided 
he  be  honest  and  diligent,  can  do  the  business 
thoroughly  well.  The  manufacturer  may  now 
employ  a  salesman  for  a  thousand  dollars, 
whereas  against  competitors  it  might  have  been 
profitable  to  pay  five  thousand  dollars  for  suc- 
cessful service.  The  stimulus  which  it  is  so 
necessary  for  travelling  book  agents  or  clerks  in 
retail  stores  to  furnish  to  their  customers  is  much 
less  needed  in  selling  to  a  dealer.  His  purchase 
depends  mainly  upon  the  demands  of  his  cus- 
tomers, and  therefore  often  upon  his  own  skill 
as  a  salesman. 

Competition  also  increases  the  necessity  of 
frequent  visits.  In  some  portions  of  the  North- 
west, within  a  few  years,  it  was  customary  for 
the  wholesale  druggists  to  send  salesmen  through 
the  country  every  six  weeks  or  two  months  to 
show  goods  and  take  orders  for  specialties,  sam- 
ples of  which  it  seemed  necessary  to  exhibit. 
Orders  for  standard  goods  were  regularly  sent 
25 


The  Trust  Problem 

to  the  manufacturers  or  wholesalers  by  mail. 
As  competition  sharpened,  and  the  travelling 
salesmen  of  some  firms  began  to  make  more 
frequent  visits,  once  a  month  or  once  every 
three  weeks,  it  became  necessary  for  their  com- 
petitors to  follow,  until  finally,  in  certain  lo- 
calities, it  had  become  customary  for  travelling 
salesmen  to  visit  the  retailers  as  often  as  every 
two  weeks.  The  retailers  themselves,  having 
become  accustomed  to  these  frequent  visits, 
grew  gradually  into  the  habit  of  reserving  orders 
to  give  to  the  salesmen  instead  of  sending  them 
by  mail,  and  the  enormous  expense  of  selling 
thus  brought  about  increased  largely  the  cost 
of  the  goods  to  the  retailer  and  consumer, 
though  it  is  probable  that  the  vigorous  struggle 
for  competitive  profit  pushed  new  and  at  times 
useful  goods  on  the  market. 

The  amount  of  loss  coming  from  this  often 
misdirected  energy  can,  of  course,  be  merely  a 
matter  of  conjecture  in  most  cases.  Mr.  Edson 
Bradley,  Vice-President  of  the  Distilling  Com- 
pany of  America,  and  President  of  the  Ameri- 
can Spirits  Manufacturing  Company,  estimates, 
in  his  testimony  before  the  United  States  Indus- 
trial Commission,  that,  in  the  sale  of  alcoholic 
26 


The  Wastes  of  Competition 

liquors  in  this  country,  somewhere  between  the 
distiller  and  the  consumer  at  least  ;^40, 000,000 
a  year  are  lost.  He  thinks  that  this  is  lost  pri- 
marily in  the  attempt  to  secure  trade,  and  that 
the  result  is  simply  a  higher  price  to  the  con- 
sumer. Part  of  this  waste  comes  from  the  wages 
paid  to  travelling  salesmen  and  from  their  travel- 
ling expenses;  and  from  that  source  alone  his 
combination  saves  ^1,000,000  a  year. 

The  cost  of  advertising  in  papers  and  maga- 
zines, by  show  windov/s,  '^  landscape  decora- 
tions," and  other  means,  adds  greatly  to  the 
cost  of  putting  goods  into  the  hands  of  the 
consumer.  The  price  of  a  single  full-page  in- 
sertion in  such  a  magazine  as  the  '^  Century 
Magazine,"  "  McClure's  Magazine,"  ''Har- 
per's Magazine,"  the  *'  Cosmopolitan,"  and 
others,  is  at  least  two  to  three  hundred  dollars; 
yet  every  one  knows  that  it  is  scarcely  possible 
to  open  any  of  the  popular  magazines  in  any 
civilized  country  without  seeing  on  one  of  the 
best  advertising  pages  some  smiling  face  with 
the  inquiry,  "  Have  you  used  Pears'  soap?" 
Other  soap  manufacturers  fill  other  pages  with 
advertisements  no  less  attractive  or  expensive, 
and  the  amount  thus  spent  in  competitive  ad- 
27 


The  Trust  Problem 

vertising  must  clearly  cost  millions  of  dollars 
per  year. 

Some  firms  push  the  sales  of  their  wares 
largely  through  the  offering  of  prizes  of  vari- 
ous kinds.  For  ;$io  one  may  secure  a  box 
of  soap,  which  at  the  retail  price  would  cost 
$10,  and  in  addition  may  receive  a  rocking- 
chair,  a  bedstead,  a  writing  desk,  a  lamp,  a 
baby  carriage,  or  other  article  to  suit  the  buyer's 
needs,  of  which  the  retail  price  v/ould  also  be 
$10.  It  is  true  that  instead  of  the  prize  one 
may  take  more  soap,  but  the  prize  was,  origi- 
nally at  least,  the  attractive  feature.  A  short 
time  ago  a  manufacturer  of  spices  advertised 
that  for  $37.50  a  customer  might  receive  spices 
of  which  the  retail  price  would  be  $37.50,  and 
in  addition  a  premium  of  a  forty-dollar  clock. 
For  $25  might  be  secured  twenty-five  dollars' 
worth  of  spices,  and  a  twenty-nine-dollar 
Waltham  watch,  with  many  other  similar 
offers.  In  all  these  cases,  not  merely  was  the 
quality  of  the  goods  advertised  of  the  best,  but 
the  premiums  were  also  of  standard  makes, 
whose  value  could  not  be  questioned. 

It  should  not  be  forgotten  that  all  this  adver- 
tising   does    not    increase    proportionately    the 


The  Wastes  of  Competition 

amount  of  soap  or  spices  consumed.  If  it  did, 
the  advertising  could  scarcely  be  considered  an 
economic  loss.  The  purpose  of  the  advertising 
is  not  chiefly  to  persuade  customers  to  buy  more 
soap  or  spices,  but  to  use  Pears'  instead  of  Col- 
gate's, or  Ivory  soap  instead  of  Babbitt's,  or  one 
favorite  brand  of  spices  instead  of  another. 
Such  expense  of  advertising  must,  of  course, 
add  greatly  to  the  cost  of  the  goods  to  the  con- 
sumer. It  is  probably  not  too  much  to  say 
that  in  many  lines  it  would  be  possible,  if  the 
competitive  advertising  were  rendered  unneces- 
sary, to  furnish  as  good  quality  of  goods  to  the 
consumers,  permit  them  to  pick  their  brands, 
and  charge  them  only  one-half  the  prices  paid 
at  present,  while  still  leaving  to  the  manufac- 
turer a  profit  no  less  great  than  chat  now 
received.  The  men  now  employed  in  the  worK 
of  advertising  might  well  put  their  efforts  to 
better  use  in  the  service  of  the  consumers. 
High  as  is  the  artistic  quality  of  some  of  the 
advertising,  its  educative  effect  would  doubtless 
be  reached  in  other  ways  at  less  cost. 

The  anxiety  to   make   sales   in  time  of  sharp 
competition  leads  also,  in  many  cases,  to  exten- 
sion  of  credits  beyond   what  is  wise,  and  the 
29 


The  Trust  Problem 

manufacturer,  fearing  to  lose  a  customer,  will 
often  fail  to  exercise  due  diligence  in  the  collec- 
tion of  debts  owed  him.  A  large  combination, 
having  control  of  a  large  proportion  of  its  class 
of  goods  in  the  market,  can  readily  avoid  these 
difficulties,  and  Trust  managers  testify  that  their 
losses  from  bad  debts  have  been  very  greatly 
lessened  through  combination. 

Whenever  competitive  business  is  carried  on 
through  many  establishments,  each  working  on 
a  small  scale,  and  particularly  when  the  indus- 
try is  one  in  which  many  qualities  of  goods  of 
a  somewhat  similar  nature  are  manufactured, 
the  buyer  is  often  put  to  considerable  expense 
in  going  from  one  manufacturer  to  another  in 
order  to  secure  the  variety  of  qualities  which 
will  satisfy  his  needs.  A  large  establishment 
which  carries  substantially  all  the  leading  quali- 
ties in  stock,  and  which  can  thus  supply  the 
demands  of  any  customer  without  trouble  to 
himself  beyond  the  presentation  of  his  order, 
will  readily  secure  trade  which  would  otherwise 
be  lost.  This  ease  in  securing  orders  is  often 
a  great  source  of  saving  to  a  combination.  The 
Distilling  Company  of  America  found  it  advis- 
able to  purchase  several  of  the  leading  brands 
30 


The  Wastes  of  Competition 

of  rye  whiskeys  in  order  that  customers  might 
supply  themselves  not  only  with  alcohol,  spirits, 
and  standard  grades  of  corn  whiskeys,  but  also, 
v/ithout  leaving  the  establishment,  with  a  suf- 
ficient number  of  the  finer  brands  of  rye  whis- 
keys, so  that  all  their  needs  in  these  directions 
would  be  met. 

A  similar  advantage  comes  from  keeping  a 
stock  so  large  that  the  largest  order  can  be  filled 
at  once.  It  has  been  estimated  by  some  con- 
versant with  the  sugar  business  that  the  Ameri- 
can Sugar  Refining  Company,  on  account  of 
its  ability  to  supply  any  customer  with  all  the 
sugar  that  he  can  require  at  any  time,  is  able 
frequently  to  secure  one-sixteenth  of  a  cent 
more  per  pound  than  some  of  its  competitors, 
they  being  compelled  to  go  one-sixteenth  below 
the  regular  market  price  in  order  to  effect  a  sale. 

These  two  advantages  apply,  of  course,  to 
department  stores  and  to  any  large  establish- 
ment, but  they  strengthen  the  tendency  toward 
control  of  the  market  in  many  cases,  even 
though  monopoly  has  not  been  reached. 

Large  sums  of  money  are  frequently  spent  by 
competitors  in  the  payment  of  cross  freights 
which  might  readily  be  saved  by  combination. 
31 


The  Trust  Problem 

When  the  Michigan  Salt  Association  was  formed 
some  years  ago  for  the  special  purpose  of  effecting 
sales  through  a  single  agency,  it  acted  as  the  sales 
agent  for  salt  wells  on  both  the  east  and  west 
sides  of  the  State  of  Michigan.  Orders  for  salt 
to  supply  Chicago  and  the  West  were  filled  regu- 
larly from  the  salt-manufacturing  establishments 
on  Lake  Michigan,  while  those  for  Detroit,  To- 
ledo, Cleveland,  and  the  East,  as  far  as  salt  was 
shipped  in  that  direction,  were  supplied  from 
those  on  Lake  Huron  and  the  St.  Clair  River, 
a  saving  thus  being  made  of  the  shipment  of  salt 
across  the  State  of  Michigan  by  rail  or  around 
the  State  by  boat  through  the  Straits  of  Macki- 
naw. This  saving  in  freights  was  great  enough 
to  make  a  profit  for  those  in  the  Association, 
v/hen  the  sale  of  salt  to  be  shipped  the  longer 
distances  at  the  same  prices  would  inevitably 
have  resulted  in  a  loss. 

In  like  manner,  the  Standard  Oil  Company, 
with  its  large  refineries  at  Bayonne,  N.  J.,  on 
the  Atlantic  seaboard,  and  others  at  Whiting, 
near  Chicago,  aside  from  any  question  of  freight 
discrimination,  is  enabled  to  secure  a  great  ad- 
vantage over  many  of  its  rivals  who  have  but  a 
single  refinery  from  which  all  orders  must  be 
32 


The  Wastes  of  Competition 

shipped  both  East  and  West.  The  Tin  Plate 
and  Steel  Companies,  when  organized  into  large 
combinations,  made  similar  saving  in  cross 
freights,  Mr.  Gates,  of  the  American  Steel  and 
Wire  Company,  estimating  their  saving  at  more 
than  ;$500,ooo  a  year,  vi^hile  other  manufac- 
turers name  also  large  savings.  It  will  be  noted 
that  this  advantage  comes  particularly  to  those 
manufacturers  whose  goods  are  bulky,  so  that 
the  freight  forms  an  essential  part  of  the  cost 
to  the  consumer.  Manufacturers  of  ribbons, 
watches,  or  other  expensive  and  highly  finished 
goods,  while  able  to  obtain  a  slight  advantage 
in  this  direction,  would  yet  find  freight  but  a 
small  part  of  their  expense. 

For  some  years  before  the  formation  of  the 
old  Whiskey  Trust,  the  capacity  of  the  existing 
distilleries  was  far  more  than  was  necessarj^  to 
supply  the  normal  demand  of  the  country  at 
profitable  prices.  In  consequence,  agreements 
were  made  from  time  to  tim.e  among  nearly  all 
the  leading  distillers  to  restrict  the  output.  One 
year  each  distiller  pledged  himself  to  run  his 
plant  at  only  40  per  cent,  of  its  full  capacity. 
Another  year  the  agreement  limited  the  output 
to  only  28  per  cent,  of  the  full  capacity.  After 
3  33 


The  Trust  Problem 

the  formation  of  the  Trust,  out  of  more  than 
eighty  distilleries  which  joined,  all  were  closed 
with  the  exception  of  twelve  of  the  largest, 
best  located,  and  best  equipped,  which  ran  at 
their  full  capacity  ,•  and  the  output  of  these  was 
equal  during  the  first  one  or  two  years  to  the 
entire  output  of  all  of  the  distilleries  which 
had  been  running  before.  Of  course  it  is  true 
that,  owing  to  the  pressure  of  competition,  a 
good  many  of  the  distilleries  had  been  shut 
down  before  the  Trust  was  organized.  It  is 
nevertheless  probable  that  no  other  source  of 
saving  was  so  great  as  that  which  came  from 
running  the  best  distilleries  to  their  full  capa- 
city and  all  the  time.  Mr.  Havemeyer,  in 
connection  with  the  Sugar  Trust,  calls  atten- 
tion emphatically  to  this  waste  of  excessive 
competition.  Before  the  organization  of  that 
Trust,  about  forty  sugar  refineries  had  been 
running,  but  none  of  them  could  work  to 
their  full  capacity  and  all  of  the  time,  and,  as 
has  been  said,  as  a  result  of  the  competition 
some  eighteen  went  into  bankruptcy.  The 
Trust  was  formed,  and  shut  down  or  even  dis- 
mantled several  of  the  refineries  which  it  bought. 
It  then  ran  the  rest  to  their  full  capacity  all  of 
34 


The  Wastes  of  Competition 

the  time,  and  in  this  way,  Mr.  Havemeyer 
thinks,  the  greatest  saving  of  the  Trust  was 
made.  At  present,  when  five  or  six  inde- 
pendent refineries  are  running  in  competition 
with  the  American  Sugar  Refining  Company, 
it  is  thought  by  the  combination  that  it  derives 
a  somewhat  similar  advantage.  In  most  cases 
the  rivals,  owing  to  the  fluctuations  in  prices, 
are  not  able  to  run  to  their  full  capacity,  and  in 
many  cases  run  only  part  of  the  time.  On  the 
other  hand,  the  Trust,  supplying  some  90  per 
cent,  of  the  market,  adopts  a  somewhat  more 
thrifty  policy.  Substantially  all  of  the  refin- 
eries, with  the  exception  of  the  largest  and  best 
equipped  one  in  Brooklyn,  are  run  to  their  full 
capacity  all  of  the  time.  In  this  one  refinery 
the  sugar  combination  places  its  most  skilful 
men,  and  through  the  operation  of  that  one 
establishment  fits  its  supply  to  the  demands  of 
the  market.  This  is  most  carefully  watched 
from  day  to  day,  and  every  possible  method  of 
avoiding  waste  and  loss  from  the  restriction  of 
output,  which  at  times  becomes  necessary,  is 
employed.  The  loss  from  a  partial  output  is 
thus  confined  to  the  one  establishment  which 
forms  but  a  small  proportion  of  the  total  capac- 
35 


The  Trust  Problem 

ity  of  the  organization,  whereas  in  the  case  of 
its  rivals  the  loss  applies  to  the  entire  capital 
invested  when  only  one  refinery  is  under  con- 
sideration. It  has  been  estimated  that  this  sav- 
ing to  the  American  Sugar  Refining  Company 
is  as  high  at  times  as  one-eighth  cent  per  pound, 
a  margin  sufficient  in  itself  to  give  a  large  profit. 
It  is  interesting  to  note  that  the  new  sugar 
combination  just  formed,  in  June,  1900,  to 
compete  with  the  American  Sugar  Refining 
Company,  gives  this  saving  as  the  chief  reason 
for  its  formation.  This  waste  of  competition, 
then,  which  comes  from  the  inability  of  adapt- 
ing one's  plants  and  output  to  the  needs  of  the 
market  without  excessive  loss,  can  be  partly 
saved  by  combination  of  many  manufacturing 
establishments  in  one  industry  under  one  man- 
agement. 

When  one  establishment,  in  order  to  supply 
the  needs  of  its  customers,  manufactures  several 
different  grades  or  qualities  of  goods,  it  becomes 
necessary  frequently  to  change  the  machinery, 
and  even  to  stop  it  at  times  while  changes  are 
made  from  one  class  of  work  to  another.  For 
example,  the  President  of  the  American  Steel 
Hoop  Company,  Mr.  Guthrie,  says  that  he 
36 


The  Wastes  of  Competition 

manufactures  from  eighty-five  to  ninety  dif- 
ferent sizes  and  kinds  of  goods.  If  these 
goods  were  manufactured  in  one  or  two  estab- 
lishments, there  would  be  frequent  changing 
of  the  rolling  machineiy  in  order  to  fill  any 
one  large  order  which  called  for  many  different 
sizes.  Under  the  present  circumstances,  a 
large  order  calling  for  different  classes  of  goods 
may  be  distributed  among  the  different  mills, 
each  one  adapted  for  the  manufacture  of  a  par- 
ticular class.  In  this  way  changes  of  the  rolls 
are  largely  avoided,  and  the  delays  are  obviated 
which  would  result  in  large  waste  of  time  and 
energy,  provided  the  competitive  system,  or 
the  system  of  small  independent  mills,  were  in 
vogue.  Mr.  Guthrie's  opinion  is  that  this 
saving  alone  amounts  to  from  a  dollar  to  a 
dollar  and  a  half  per  ton  in  manufacture.  The 
leather  combinations  find  that  they  have  avoided 
similar  wastes  by  manufacturing  in  one  estab- 
lishment certain  special  grades  of  shoes  to  which 
special  kinds  of  leather  can  be  sent,  instead  of 
having  each  establishment  separate  the  leather 
for  itself  and  manufacture  many  different  grades 
of  shoes.  This  waste  of  competition — or  if 
one  prefers  in  this  case  to  say  of  subdivision — 
37 


The  Trust  Problem 

which  can  be  avoided  by  combination,  of 
course  varies  largely  with  the  different  kinds  of 
manufacture,  but  in  some  the  waste  is  doubtless 
very  great.  The  saving  in  a  large  establish- 
ment does  not  of  necessity  imply  monopoly. 

The  head  of  one  of  the  largest  stores  in  the 
country  was  not  long  since  showing  a  friend 
through  the  establishment.  To  inquiries  as  to 
wages  of  different  employees,  the  reply  was: 
*'  This  man  receives  $i 0,000  per  year;  that 
one  receives  a  salary  of  ^15,000  per  year," 
and  so  on,  as  the  heads  of  various  important 
departments  were  pointed  out.  When  the 
friend  remarked  that  it  must  be  difficult  to  pay 
dividends  if  such  enormous  salaries  were  paid 
to  so  many  men,  the  manager  replied:  "  There 
is  nothing  so  cheap  as  brains;  they  must  be  had 
at  any  price."  Every  person  who  deals  with 
large  affairs  in  any  profession  or  trade  or  walk 
in  life  recognizes  the  fact  that  nothing  is  so 
rare  as  excellence.  Whether  the  work  be 
manufacturing,  or  transportation,  or  merchandiz- 
ing, or  teaching,  or  law,  the  fact  is  the  same. 
The  first-class  man  is  exceedingly  rare,  and  is 
cheap  at  almost  any  price.  The  great  mer- 
chant princes,  like  Stewart,  or  Field,  or  Wana- 
38 


The  Wastes  of  Competition 

maker  ;  the  great  manufacturers,  like  Carnegie, 
or  Rockefeller,  or  Havemeyer,  are  possible  un- 
der present  circumstances  because  such  talent 
for  managing,  whether  for  the  public  good  or 
ill,  is  rare ;  and  when  it  is  found,  the  opportuni- 
ties for  its  employment  readily  come,  as  they 
do  to  the  great  lawyer  or  preacher.  Without 
ignoring  the  fact  that  the  competitive  system 
plays  a  noble  part  often  in  selecting  for  indus- 
trial society  the  great  leader,  it  is  still  true  that 
one  of  the  chief  wastes  of  competition  is  found 
in  the  fact  that  the  separate  establishments  are 
mostly  in  the  hands  of  mediocre  men,  who,  un- 
able to  effect  the  savings  that  come  from  the 
most  skilful  organization  or  from  a  judicious 
forecast  of  the  market,  lose  money  for  their 
stockholders  without  any  saving  to  consumers 
from  low  prices. 

Great  skill  in  management  is  by  no  means, 
as  many  seem  to  think,  the  mere  taking  advan- 
tage of  an  opportunity  to  cheat  a  customer  or 
hoodwink  a  competitor;  but  it  frequently,  if 
not  generally,  results  in  an  absolute  saving  of 
energy  which  comes  from  the  more  skilful  or- 
ganization of  labor,  and  adaptation  of  ways  and 
means  to  ends.  The  combination,  bringing  to- 
39 


The  Trust  Problem 

gether  numerous  establishments  of  the  same 
kind,  is  enabled  to  select  the  most  skilful  men 
to  place  in  charge,  and  thus  practically  an  en- 
tire industry  can  be  managed  with  the  same  skill 
as  a  single  establishment.  While  it  is  of  course 
true  that  one  man  cannot  give  his  personal 
attention  to  the  details  of  a  very  large  business, 
so  that  at  times,  doubtless,  in  the  combination 
there  is  a  certain  waste  that  comes  from  lack 
of  detailed  inspection  by  the  chief  owner,  it  is 
nevertheless  true  that  this  waste  is  in  most  cases 
comparatively  little.  The  man  of  really  great 
executive  ability  knows  so  well  how  to  organize 
his  business  that  men  of  inferior  capacity  work- 
ing under  his  system,  even  though  only  upon 
salaries,  are  enabled  to  do  better  and  more  care- 
ful work  by  far  than  the  same  men  in  an  inde- 
pendent position,  where  they  are  unable  to  con- 
sult to  advantage  men  more  skilled  than  they. 
One  chief  gift  of  a  great  executive  is  the  power 
to  select  and  direct  subordinates.  The  skill 
of  Grant  as  a  general  was  shown  not  more 
in  the  planning  of  battles  than  in  the  selection 
of  his  chief  commanders,  and  in  his  power 
to  discern  wherein  they  could  be  trusted,  so 
as  thus  to  inspire  each  to  his  best  efforts. 
40 


The  Wastes  of  Competition 

The  same  skill  is  shown  by  a  great  captain  of 
industry. 

This  advantage  of  management  by  the  best 
talent  is  a  matter  also  of  the  proper  distribution 
of  talent.  Some  man  in  his  independent  estab- 
lishment may  have  been  peculiarly  successful 
on  account  of  his  skill  as  a  salesman;  another, 
on  account  of  his  organizing  ability;  a  third, 
on  account  of  his  special  technical  knowledge, 
and  so  on.  If  these  various  competing  estab- 
lishments are  united  into  one,  to  each  man  can 
be  given  the  department  for  which  he  is  pecu- 
liarly adapted,  and  in  that  way  the  joint  estab- 
lishment gets  the  advantage  of  the  peculiar  skill 
of  each. 

Manufacturing  establishments  are  sometimes 
embarrassed  by  the  difficulty  of  securing  a 
proper  supply  of  raw  material  at  the  exact  time 
when  it  is  needed,  and  in  proper  quantities  and 
qualities.  On  the  other  hand,  miners  or  other 
producers  of  raw  material  are  also  frequently 
embarrassed  in  finding  a  sure  market  for  their 
product.  In  consequence  of  these  facts,  many 
combinations  like  the  Federal  Steel  Company 
(the  organization  of  which  with  its  peculiarities 
is  explained  in  detail  in  a  later  chapter)  have 
41 


The  Trust  Problem 

been  made,  not  of  those  who  are  competitors  in 
the  same  line  of  manufacture,  but  rather  between 
the  producers  of  raw  material  and  the  manufac- 
turers of  the  finished  product,  in  order  that  these 
requirements  of  demand  and  supply  may  be 
readily  met,  and  the  course  of  production  from 
the  raw  material  through  to  the  highest  finished 
product  may  be  carried  on  without  delay  or 
unnecessary  friction. 

A  very  large  establishment  often  finds  it  prof- 
itable to  manufacture  some  by-products  from 
its  waste  material,  which,  owing  to  the  extra 
capital  needed,  or  to  an  insufficient  quantity  of 
waste  material,  its  smaller  rival  must  either  lose 
entirely  or  part  with  at  a  disadvantage.  The 
largest  oil  refineries  at  times  make  as  much  profit 
from  by-products  as  from  their  illuminating  oil. 

It  would  seem  that  if  there  is  any  real  eco- 
nomic function  of  combination  of  capital, 
whether  it  has  attained  monopolistic  power  or 
not  J  it  is  this:  saving  the  various  wastes  of 
competition,  in  great  part  by  providing  for  the 
direction  of  industrial  energy  to  the  best  ad- 
vantage. Under  wastes  of  competition  may 
be  understood  also  those  of  subdivision  in  pro- 
duction or  production  on  a  small  scale;  under 
42 


The  Wastes  of  Competition 

combination  also  mere  aggregation  of  capital. 
But  these  separate  meanings  should  be  distin- 
guished, as  is  done  later.  In  this  way  only  can 
it  be  made  possible  for  the  general  public  to 
secure  articles  of  consumption  at  an  absolutely 
low  price  on  the  basis  of  a  low  cost  of  manu- 
facture. How  far  combinations  thus  far  have 
permitted  the  public  to  gain  these  advantages, 
and  how  far  they  have  themselves  selfishly  taken 
advantage  of  their  superior  productive  power  to 
the  detriment  of  the  public,  will  be  considered 
elsewhere. 


43 


CriAPTER   III 

FAVORS    TO    INDUSTRIAL    COMBINATIONS 

Many  writers  and  thinkers  on  the  subject  of 
industrial  combinations  are  of  the  opinion  that 
they  are  usually  brought  into  existence  by 
special  favors,  and  that,  at  any  rate,  whatever 
monopolistic  power  they  possess  is  secured  in 
this  way.  It  is  even  the  contention  of  some 
that  unless  the  industries  themselves  are  natural 
monopolies,  such  as  railways  and  the  tele- 
graphs, or  unless  they  are  granted  some  special 
legal  privileges,  such  as  patents  or  copyrights, 
it  is  impossible  for  them  to  secure  monopolistic 
power  without  some  special  favors  shown  them. 

The  protective  tariff  is  probably  most  fre- 
quently cited  as  a  special  favor  to  an  industry  that 
brings  into  existence  monopolies.  The  dictum  of 
Mr.  Havemeyer,  the  President  of  the  American 
Sugar  Refining  Company,  in  his  testimony  be- 
fore the  United  States  Industrial  Commission, 
that  "  the  mother  of  all  Trusts  is  the  customs 
tariff  law,"  has  found  ready  acceptance  by  large 
44 


Favors  to  Industrial  Combinations 

numbers  of  thoughtful  people.  Mr.  Have- 
meyer's  contention  is  that  a  high  tariff,  by  mak- 
ing the  protected  industry  very  profitable,  will 
tempt  much  capital  into  that  special  field.  In 
many  cases,  the  establishments,  on  account  of 
the  high  profits,  will  be  placed  carelessly  in 
unfavorable  locations.  In  other  instances,  for 
the  same  reason,  men  who  are  not  skilled  in 
the  industry  will  be  ready  to  engage  in  it. 
The  promise  of  high  profits  having  thus  tempted 
many  rivals  into  the  field,  the  pressure  from  this 
home  competition  becomes  severe,  and  inves- 
tors feel  themselves  cheated  of  their  anticipated 
profits.  With  the  profits  thus  in  sight,  or 
even  perhaps  with  the  memory  of  large  profits  in 
the  immediate  past  to  stimulate  them,  they  more 
readily  combine,  not  primarily  for  the  sake  of 
reducing  expenses,  but  rather  for  the  purpose  of 
reaping  from  consumers  a  large  reward  through 
high  prices.  It  is  beyond  question  true  that 
several  of  our  largest  combinations  have  been 
formed  in  industries  protected  to  a  considerable 
extent  against  the  pressure  of  foreign  competi- 
tion by  the  high  protective  tariff.  Indeed,  Mr. 
Havemeyer  himself  acknowledged  that,  had  the 
sugar  industry  at  the  time  of  the  formation  of 
45 


The  Trust  Problem 

the  Trust  not  been  so  protected  that  there  was 
promise  of  a  high  profit  without  foreign  com- 
petition, he  would  not  have  risked  his  property 
in  the  combination,  which  of  necessity  included 
also  many  of  those  establishments  least  favor- 
ably situated  for  cheap  production. 

The  situation  is,  however,  not  so  exceptional 
as  is  often  thought.  Even  in  unprotected  in- 
dustries in  which  the  United  States  has  an  ad- 
vantage, the  same  principle  of  high  profits  in 
the  earlier  days,  lower  profits  from  the  pressure 
of  competition,  and  the  consequent  temptation 
to  combination  exists.  If  one  considers  what 
the  effect  would  probably  be  of  the  removal  of 
the  protective  tariff  in  an  industry  in  which  a 
combination  exists,  one  can  readily  see  that, 
while  the  public  might  be  benefited,  the  result 
would  hardly  be  the  prevention  of  monopoly. 
If  the  combination,  as  is  ordinarily  assumed, 
were  stronger  than  the  few  independent  com- 
petitors still  in  existence  in  the  country,  the 
first  effect  of  the  removal  of  the  tariff  would  be 
the  ruin  of  the  independent  producers.  Pro- 
vided the  industry  were  dependent  entirely  upon 
the  tariff  for  its  existence,  the  removal  of  the 
tariff  would  of  course  kill  the  Trust,  but  would 
46 


Favors  to  Industrial'  Combinations 

at  the  same  time  kill  the  entire  industry.  The 
question  of  the  wisdom  of  supporting  an  indus- 
try by  the  tariff  is  not  in  question.  It  might 
be  wise  to  kill  a  certain  industry,  but  it  should 
be  borne  in  mind  that  those  who  advocate  the 
removal  of  the  tariff  for  the  sake  of  destroying 
the  Trusts  do  not  ordinarily  contemplate  such 
an  outcome.  The  removal  of  the  tariff,  whether 
the  industry  were  dependent  upon  it  or  not, 
would  certainly  destroy  the  rivals  of  the  Trust 
before  the  Trust  itself  would  go  out  of  exist- 
ence. In  either  case,  however,  the  consumers 
would,  beyond  question,  for  the  time  being, 
enjoy  lower  prices. 

It  is  also  true  that  the  removal  of  the  tariff 
in  many  instances  by  strengthening  the  com- 
petition from  foreigners  would  simply  bring 
about  an  international  combination.  At  pres- 
ent there  exists  an  international  thread  combina- 
tion. Chairman  Gates  of  the  American  Steel 
and  Wire  Company  testified  before  the  Indus- 
trial Commission  that,  during  the  summer  of 
1899,  while  abroad,  he  had  several  meetings 
with  German  wire  manufacturers,  who  are  also 
combined,  for  the  purpose  of  seeing  if  it  were 
not  possible  and  advisable  to  form  an  interna- 
47 


The  Trust  Problem 

tional  combination  for  the  manufacture  of  wire, 
since  the  Germans  at  present  are  the  most 
serious  competitors  of  the  Americans.  The 
plan  suggested  was  for  the  two  countries  to 
divide  the  world's  markets  in  accordance  with  a 
fixed  percentage,  and  to  agree  upon  an  increase 
in  price.  The  difference  of  opinion  as  to  the 
percentage  of  the  markets  which  should  be 
allowed  to  the  Americans — Mr.  Gates  demand- 
ing fifty,  while  the  Germans  were  willing  to 
grant  at  the  outside  not  more  than  forty-five — 
and  further  differences  of  opinion  regarding  the 
increase  in  price — he  being  content  with  an  in- 
crease of  $10  per  ton,  the  Germans  wishing  to 
secure  one  of  ;^30 — finally  made  him  distrust- 
ful, and  resulted  in  the  breaking  off  of  the  nego- 
tiations. The  mere  fact,  however,  that  two 
powerful,  even  virtually  monopolistic,  combina- 
tions in  two  leading  countries  could  in  this  way 
have  progressed  so  far  in  negotiation,  makes  it 
perfectly  evident  that  the  pressure  which  might 
be  brought  to  bear  by  the  removal  of  tariff  ob- 
structions, or,  in  other  circumstances,  by  the 
imposition  of  tariff  burdens,  might  readily  result 
in  an  international  combination  of  some  form. 
Probably  even  without  such  pressure  interna- 
48 


Favors  to  Industrial  Combinations 

tional  combinations  are  in  prospect  for  the  near 
future.  Nearly  all  of  the  larger  manufacturers 
have  now  their  agents  abroad;  sales,  especially 
in  iron  and  its  products,  are  made  continually  in 
all  foreign  countries;  and  it  would  not  be  at 
all  difficult  in  most  cases  to  enter  upon  negotia- 
tions for  combination.  It  is  true  that  it  is  not 
many  years  since  the  great  copper  syndicate  of 
Paris,  which  seemed  for  the  time  to  control 
substantially  the  entire  output  of  the  world, 
made  a  most  humiliating  failure;  but  such  ex- 
periences ordinarily  serve  but  to  point  out  weak- 
nesses in  a  certain  plan  and  to  suggest  better 
methods  for  the  future. 

Freight  discriminations  in  behalf  of  favored 
shippers  are  very  frequently  cited  as  a  chief 
cause  for  the  formation  and  rapid  growth  of  in- 
dustrial combinations.  There  can  be  no  doubt 
that  such  discriminations  have  frequently  been 
made  in  favor  of  large  shippers,  whether  manu- 
facturers, buyers  of  grain,  shippers  of  dressed 
meats,  or  others.  In  fact,  in  many  lines  of 
business,  it  has  probably  been  true  that  no  per- 
son who  did  not  receive  some  rebate  from  the 
printed  tariff  rates,  or  other  favor  from  the  rail- 
roads, could  remain  in  business,  as  such  draw- 
4  49 


The  Trust  Problem 

backs  or  other  favors  were  so  frequently  given. 
There  is  reason  to  believe  also  that  this  evil  still 
exists  to  a  very  great  degree.  Within  the  last 
year  prominent  shippers  have  expressed  the 
opinion,  based  apparently  on  their  own  experi- 
ence, that  rebates  were  regularly  paid  at  the 
present  time  by  the  railways  to  a  few  of  the 
largest  shippers,  and  that  in  this  way  the  smaller 
dealers  were  compelled  to  sell  their  goods 
directly  to  the  larger.  Others  have  not  hesi- 
tated to  say  in  private  that  their  shipments  were 
regularly  made  by  special  contract,  and  that 
practically  no  attention  was  paid  to  schedule 
rates.  Shippers,  railway  officials,  special  stu- 
dents who  are  particularly  well  acquainted  with 
the  problems  of  interstate  commerce,  all  assert 
that  such  discriminations  exist  in  favor  of  the 
larger  shippers,  and  that,  as  yet,  no  successful 
remedy  has  been  found  for  the  evil. 

The  enormous  and  dangerous  power  of  the 
railways,  by  giving  special  rates  in  favor  of 
shipments  to  one  town,  in  building  up  that 
town  at  the  expense  of  its  neighboring  rivals, 
or  in  pouring  wealth  into  the  lap  of  one  great 
shipper  or  manufacturer,  while  bringing  by  the 
same  process  ruin  to  his  competitors,  can  hardly 
50 


Favors  to  Industrial  Combinations 

be  overestimated.  The  fact  that  such  discrimi- 
nation has  been  considered  by  our  highest  courts 
and  ablest  writers  contrary  to  public  policy  as 
well  as  to  good  morals  does  not  lessen  materi- 
ally the  difficulty  of  the  problem. 

There  can  be  no  question  that  the  largest 
shippers  are  able  in  many  cases  not  merely  to 
lessen  labor  for  the  railways,  but  also  to  render 
more  secure  their  profits,  their  steadiness  of 
shipment,  and  certainty  of  pay.  Moreover, 
they  can  in  many  cases  render  direct  service 
to  the  railways  in  the  way  of  adapting  their 
shipments  more  or  less  to  the  conditions  of 
traffic  so  as  to  accommodate  the  railways,  and 
in  cases  of  agreements  more  or  less  formal, 
among  different  roads,  they  can  act  as  eveners  of 
traffic.  Many  of  these  services,  some  of  which 
are  perfectly  legal  and  proper  in  their  nature, 
would  seem  to  justify  some  sort  of  payment, 
and  it  is  on  the  basis  of  such  benefit  received 
that  the  railroads  attempt  to  justify  their  dis- 
criminations from  an  ethical  as  well  as  from  a 
business  standpoint.  Such  justification  might, 
too,  in  many  cases  be  complete,  were  the  rail- 
road dividends  alone  under  consideration;  but  if 
the  public  weal  is  threatened  by  monopoly  thus 
51 


The  Trust  Problem 

created,  and  if  individual  ability  and  efFort,  how- 
ever well  directed,  are  thus  secretly  rendered  use- 
less, there  can  hardly  be  justification  from  the 
social  point  of  view.  In  interstate  matters,  of 
course,  since  the  passage  of  the  Interstate  Com- 
merce Law  in  1887,  such  discriminating  practices 
are  clearly  illegal,  and  they  have  generally  been 
considered  as  contrary  to  public  policy ;  but  that 
they  are  granted,  and  that  business  is  done  largely 
on  that  basis,  is  scarcely  a  matter  of  question. 
That  such  discriminations,  too,  usually  favor  the 
large  shipper,  giving  him  at  times  monopolistic 
power,  and  increasing  his  monopolistic  power, 
if  such  already  exists,  is  beyond  doubt. 

Inasmuch  as  such  discriminations  are  con- 
trary to  law,  it  has  been  asserted  by  several  of 
the  larger  combinations,  such  as  the  Standard 
Oil  Company  and  the  American  Sugar  Refin- 
ing Company,  that  it  is  even  better  policy  for 
them,  to  say  nothing  of  the  moral  aspect  of  the 
question,  to  live  up  to  the  law  strictly,  and  see 
to  it  that  their  rivals  are  forced  to  do  the  same, 
than  to  run  any  risk  of  being  caught  in  illegal 
practices.  This  is  especially  true  where  the 
shipments  are  very  numerous  and  are  made 
from  widely  separated  points,  so  that  evasions 
52 


Favors  to  Industrial  Combinations 

of  the  law  would  almost  certainly  be  detected. 
One  scarcely  needs  to  add  that  their  rivals 
believe  that  their  practice  hardly  agrees  with 
their  avowed  policy. 

Aside,  however,  from  violations  of  the  Inter- 
state Commerce  Law,  the  large  combinations  at 
times  get  freight  advantages  which  add  greatly 
to  their  power.  It  seems  to  be  established  that 
the  Standard  Oil  Company  receives  decided 
advantages  from  the  location  of  its  refineries  at 
Bayonne,  New  Jersey,  when  the  nature  of  the 
freight  rates  on  oil  shipped  into  that  territory 
is  taken  into  consideration.  Shippers  of  goods 
from  Western  Pennsylvania  or  Ohio  to  points 
in  the  New  England  States  are  usually  given 
Boston  rates  on  most  articles ;  but  on  petroleum 
the  rate  is  arbitrary,  a  local  rate  usually  being 
added  to  the  through  Boston  rate.  On  that 
account  the  rivals  of  the  Standard  Oil  Company 
whose  refineries  are  located  in  Western  Penn- 
sylvania or  Ohio  find  it  impossible  to  compete 
at  many  points  which  they  could  easily  supply 
at  profitable  prices,  provided  that  Boston 
freight  rates  were  charged.  The  Standard  Oil 
Company,  by  bringing  its  oil  to  East  Boston 
in  tank  steamers  from  its  refineries  on  the 
53 


The  Trust  Problem 

seacoast,  can  distribute  throughout  New  England 
at  only  the  local  rates,  thus  securing  so  decided 
an  advantage  that  it  is  able  to  control  the 
oil  market  throughout  that  territory.  In  like 
manner,  by  having  very  large  refineries  located 
at  Whiting,  near  Chicago,  it  is  able  to  supply 
the  South  and  West  at  lower  rates  than  its  rivals, 
who  ship  from  Western  Pennsylvania  or  Ohio, 
the  rates  from  the  immediate  neighborhood  of 
Whiting  being  apparently  much  lower  than 
those  from  localities  where  rival  refineries  are 
located.  It  may  pay  exactly  the  same  rates  as 
its  competitors  pay  when  shipments  are  made 
over  the  same  routes;  but,  owing  to  the  fact 
that  its  refineries  are  more  advantageously 
located,  it  not  only  secures  a  great  advantage  in 
the  saving  of  cross  freights,  but  it  can  also  save 
through  favors  in  rate  making.  It  is  not 
thought  by  many  that  there  is  any  direct  dis- 
crimination when  oil  is  shipped  over  the  same 
route,  but  the  railroads  seem  to  have  arranged 
their  rates  in  such  a  way  that  they  work  decidedly 
to  the  advantage  of  a  company  situated  as  is  the 
Standard  Oil  Company.  The  arrangements 
made,  too,  are  so  difi^erent  from  those  that  obtain 
in  other  lines  of  goods  that  they  give  color  to  the 
54 


Favors  to  Industrial  Combinations 

belief  held  by  so  many  that  the  railroads  and  the 
Standard  Oil  Company  are  working,  in  certain 
cases,  practically  in  partnership.  It  is  prob- 
able that  a  careful  study  of  the  freight  rates  on 
other  classes  of  goods  controlled  by  other  very 
large  shippers  would  reveal  similar  arrange- 
ments. Especially  may  one  fairly  make  this 
assumption  when  specific  cases  of  favoritism 
that  are  illegal  in  form  as  well  as  in  spirit  are 
openly  acknowledged  both  by  the  railroads  and 
by  shippers. 

The  distinction  should  not  be  overlooked 
between  the  proper  and  legitimate  advantages 
derived  by  large  shippers  and  combinations 
through  better  facilities  for  handling,  adapta- 
tion of  trade  to  circumstances  and  markets, 
savings  in  cross  freights,  etc.,  and  those  arbi- 
trzry  discriminations,  whether  technically  illegal 
or  not,  by  which  a  railroad  may  at  will  build 
up  or  ruin  a  special  locality  or  any  single 
shipper  without  regard  to  his  care  or  skill. 


55 


CHAPTER   IV 

COMBINATION    AND    MONOPOLY 

There  is  much  difference  of  opinion  as  to 
whether  or  not  the  large  combinations  of  cap- 
ital of  the  present  day  are  to  be  considered  mo- 
nopolies; and  since  the  decisions  of  the  courts 
regarding  combinations  are  based  largely  on  their 
views  regarding  monopoly,  the  question  has  a 
decidedly  practical  aspect.  When  a  monopoly 
is  found  to  exist,  there  seems  to  be  also  a  differ- 
ence of  opinion  as  to  the  force  by  which  the 
monopoly  is  retained.  Of  course  circumstances 
are  likely  to  differ  in  the  different  cases.  Some 
of  the  larger  combinations  have  succeeded  in 
obtaining  control  of  practically  all  of  the  valu- 
able patents  in  certain  lines  of  manufacturing, 
thus  giving  them  a  legal  monopoly  which  would 
be  protected  by  the  courts.  Practically  all  of 
the  barb  wire  made  in  the  country  at  the  present 
time,  as  well  as  the  wire  fencing,  is  in  the 
hands  of  the  American  Steel  and  Wire  Com- 
pany, because  that  company  owns  all  of  the 
56 


Combination  and  Monopoly 

valuable  patents,  with  one  or  two  exceptions, 
in  those  lines  of  manufacturing. 

No  one  questions  the  fact  that  the  so-called 
''  industries  of  increasing  returns  "  or  "  natural 
monopolies,"  such  as  the  railways,  the  tele- 
graphs, the  telephones,  the  street  railways,  gas 
and  electric-lighting  plants,  etc.,  do,  as  a  mat- 
ter of  fact,  in  most  cases  possess  a  real  raojoop- 
oly.  It  is,  of  course,  true  that  this  monopoly 
is  probably  in  no  instance  entirely  without  some 
competing  force  in  operation  against  it.  A  gas 
company  may  supply  all  of  the  gas  used  in  a 
city,  but  some  of  the  more  thrifty  individuals 
will  use  wax  candles  or  kerosene  lamps  instead 
— a  kind  of  competition  which  may  often  mate- 
rially affect  the  dividends  of  the  gas  companies. 
There  may  be  but  one  street  railway  company 
in  a  city,  but  if  its  prices  are  high,  or  if  they 
are  even  at  the  ordinary  rate,  there  is  always 
more  or  less  competition  from  carriages,  omni- 
buses, and  bicycles.  In  all  of  these  instances, 
however,  the  fact  that  there  is  more  or  less 
business  carried  on  by  others  does  not  prevent 
the  existence  of  what  is  properly  called  a 
monopoly. 

Most  of  the  instances  which  have  been  cited 
57 


The  Trust  Problem 

of  the  savings  of  the  wastes  of  competition 
which  come  from  the  combination  of  different 
establishments,  have  dealt  with  organizations 
that  are  neither  "  legal  monopolies  *'  nor  ''  nat- 
ural monopolies,"  as  those  expressions  are  or- 
dinarily understood,  but  are  simply  combinations 
with  a  very  large  capital;  although  in  some 
cases,  like  the  Standard  Oil  Company,  which 
controls  pipe  lines,  there  may  be  united  with 
them  some  natural  monopoly,  or  they  may  re- 
ceive some  special  favors,  such  as  those  just 
mentioned  of  freight  discrimination  or  of  favor- 
able tariffs,  which  may  aid  them  in  maintaining 
their  position.  The  advantages  of  freight  dis- 
criminations and  tariffs  are  to  be  found  also  in 
the  case  of  nearly  all  large  manufacturers  or 
shippers,  even  though  they  have  not  been  able 
to  secure  what  may  be  considered  a  monopolistic 
control  of  the  market. 

It  is  even  sometimes  asserted  that  the  posses- 
sion of  very  large  capital  is  in  itself  never  suffi- 
cient to  secure  a  monopoly  in  any  industry,  while 
the  popular  opinion  clearly  is  that  practically  all  of 
the  so-called  Trusts,  whether  recipients  of  these 
special  favors  or  not,  possess  monopolistic  power, 
and  are  properly  called  monopolies.  Any  differ- 
58 


Combination  and  Monopoly 

ences  of  opinion  that  arise  over  such  a  question 
are  usually  differences  coming  from  misunder- 
standings regarding  terms.  Late  decisions  of  the 
courts  and  the  common  usage  of  later  days  jus- 
tify the  use  of  such  expressions — which,  strictly 
speaking,  are  often  self-contradictory — as  "par- 
tial monopoly,"  "  temporary  monopoly,"  "vir- 
tual monopoly,"  etc.  It  should  be  kept  in  mind 
that  these  expressions  themselves  call  attention 
to  the  difference  between  those  conceptions  and 
that  of,  let  us  say,  a  legal  monopoly.  In  the 
case  of  the  legal  monopoly,  the  monopolist  has 
absolute  control  of  the  market,  and  may  forbid 
under  penalty  of  law  any  competition  whatever. 
The  monopoly  price,  then,  will  be  fixed  on  the 
basis  of  the  greatest  net  returns  to  the  manu- 
facturer. In  determining  this  price,  the  cost 
of  production  for  our  purpose  here  being  as- 
sumed to  be  constant,  the  manufacturer  takes 
into  account  mainly  two  factors,  the  number 
of  sales  that  can  be  made,  and  the  price,  or,  to 
put  the  matter  in  another  way,  the  effect  of 
price  upon  the  demand.  Will  the  net  returns 
be  greater  with  more  numerous  sales  at  lower 
prices,  or  with  fewer  sales  at  higher  prices  ? 
The  question  of  competition  does  not  enter  into 
59 


The  Trust  Problem 

the  problem.      Only  the  demand  need  be  con- 
sidered. 

On  the  other  hand,  it  seems  to  be  generally- 
conceded  (at  any  rate  the  courts  and  popular 
usage  concede  it)  that  it  is  proper  nowadays  to 
use  the  word  "  monopoly  "  even  when  the  ele- 
ment of  competition  is  not  entirely  eliminated.  A 
manufacturer  who  controls,  let  us  say,  90  per 
cent,  of  the  output  of  any  product  is  enabled  to 
put  prices  considerably  higher,  for  the  time 
being,  than  could  any  one  of  ten  active  com- 
petitors, each  one  of  whom  controlled  not  much 
more  than  10  per  cent,  of  the  output,  or  than 
fifty  competitors,  no  one  of  whom  controlled 
more  than  3  or  4  per  cent,  of  the  output.  The 
manufacturer  with  90  per  cent,  of  the  output 
must,  for  the  time  being,  supply  a  very  large 
majority  of  would-be  purchasers.  If  he  puts 
his  price  above  former  competitive  rates,  even 
to  a  considerable  degree,  it  will  still  be  true 
that  a  majority  of  the  customers  must  buy  from 
him,  since  the  other  sources  of  supply  are  not 
sufficient  to  meet  their  needs.  To  be  sure, 
exorbitant  prices  cannot  be  held  for  any  great 
length  of  time  without  calling  competitors  into 
the  field;  but,  in  many  instances,  a  rival  power- 
60 


Combination  and  Monopoly 

ful  enough  to  make  really  effective  competition 
could  not  build  and  equip  a  new  plant,  costing 
possibly  some  millions  of  dollars,  short  of  two 
or  three  years.  While  one  may  grant  that  un- 
der those  circumstances  the  monopoly  would  be 
only  temporary,  it  clearly  seems  proper,  as  it 
certainly  is  common,  to  say  that  the  manufac- 
turer possesses,  at  least  temporarily,  a  monopoly. 
He  certainly  is  exercising  and  can  exercise  for  a 
considerable  length  of  time  a  really  monopolistic 
power.  It  is  also,  however,  true  that  in  fixing 
prices  so  as  to  secure  under  the  circumstances 
the  greatest  net  returns,  he  has  to  take  into  con- 
sideration this  third  factor — that  of  potential 
competition — which  does  not  enter  into  the 
problem  when  the  monopoly  is  legal  in  its  na- 
ture. 

He  may  find  it  best  to  secure  the  greatest 
returns  possible  for  only  a  short  time,  knowing 
that,  if  he  follows  that  course,  competitors  will 
comparatively  soon  force  him  to  lower  his 
prices.  Perhaps  the  best  example  of  a  tempo- 
rary monopoly  following  this  plan  is  to  be 
found  in  the  case  of  the  Wire  Nail  Pool,  which 
existed  in  the  years  1895-96.  The  Pool 
was  enabled  to  increase  the  prices  rapidly  from 
61 


The  Trust  Problem 

$1.4.$  per  hundred  to;^i.8o,  to  ;^2.i5, 10^2.65, 
to  ^2.85 — where  it  held  them  six  months — to 
$2-,  for  two  months,  and  finally  to  ;^3.i5,  where 
it  held  them  six  months  more  before  the  break 
came.  By  the  end  of  that  time,  after  some 
eighteen  months  of  monopoly,  competitors  had 
succeeded  in  providing  facilities  for  manufacture, 
so  that  the  Pool  was  broken,  and  prices  fell  back 
to  a  competitive  rate,  although  not  quite  so  low 
as  they  had  been  before  the  organization  of  the 
Pool.  Indeed,  in  this  case,  the  boldness  of  the 
Pool  managers  in  pushing  prices  so  very  high 
doubtless  extended  the  time  of  their  monopoly. 
Competitors  enough  to  break  the  Pool  would 
have  arisen  sooner,  had  not  each  one  anticipated 
its  speedy  collapse  on  account  of  its  high  prices 
promising  enormous  profits.  Each  believed  that 
some  one  else  must  very  soon  enter  the  field. 

On  the  other  hand,  it  may  be  that  the  so- 
called  capitalistic  monopoly  may  consider  it 
wiser  to  attempt  to  secure  its  returns  perma- 
nently. In  that  case,  while  it  may  perhaps  keep 
prices  somewhat  above  former  competitive  rates, 
it  must  keep  them  low  enough  so  that  the  temp- 
tation for  competitors  to  enter  the  field  will  not 
be  great,  and  it  must  be  able  to  put  them  with- 
62 


Combination  and  Monopoly 

out  absolute  loss  lower  than  it  would  be  possible 
for  an  ordinary  rival  to  manufacture  and  sell. 
It  would  probably  be  granted  by  all  that  an  or- 
ganization controlling  for  the  time  being  90  per 
cent,  of  the  output  of  any  product,  by  putting 
its  prices  down,  can  compel  its  few  rivals  to 
follow;  while,  on  the  other  hand,  it  may  put 
prices  up  above  former  competitive  rates,  and 
can  still  for  a  considerable  length  of  time  con- 
trol sales,  inasmuch  as  the  other  sources  of  sup- 
ply cannot  fill  the  demand.  If  its  competitors, 
controlling  only  10  per  cent,  of  the  output, 
put  prices  up,  they  will  make  practically  no 
sales,  inasmuch  as  the  combination  can  sup- 
ply on  short  notice  the  entire  market;  v/hile, 
on  the  other  hand,  if  they  put  prices  down  be- 
low the  market  rate,  the  combination  will  not 
be  compelled  to  follow  in  all  places,  inasmuch 
as  the  competitors  cannot  supply  the  entire 
market.  It  need  meet  their  prices  only  in  their 
own  localities.  In  fact,  it  is  not  infrequently 
the  case  that  the  small  competitor,  owing  to  the 
fear  of  customers  that  he  may  not  be  able  to 
supply  their  orders,  will  be  compelled  to  sell 
very  generally  at  something  below  the  market 
rate  as  fixed  by  the  combination.  Late  testi- 
63 


The  Trust  Problem 

mony,  given  before  the  Industrial  Commission, 
as  has  been  previously  stated,  seems  to  show 
that  some  of  the  competitors  of  the  American 
Sugar  Refining  Company  have  during  the  past 
year,  for  a  considerable  part  of  the  time,  been 
compelled  to  sell  at  one-sixteenth  of  a  cent  per 
pound  below  the  market  rate. 

Will  now  experience  justify  the  contention 
that  mere  possession  of  great  capital  will  give 
substantially  no  monopolistic  power  permanent 
in  its  nature,  unless  some  element  of  legal  or 
natural  monopoly  or  some  special  favor,  such  as 
comes  from  the  tariff  or  from  discriminating 
rates  on  railroads,  be  also  secured  ?  Of  course 
this  question  cannot  be  settled  absolutely  on  a 
basis  of  fact  until  after  more  years  of  experience; 
but  certain  advantages  come  from  the  possession 
of  large  capital  which  clearly  under  our  present 
system  of  laws  tend  toward  monopoly;  and, 
so  far  as  we  have  a  basis  of  experience  in  fact, 
that  experience  seems  to  justify  the  belief  that 
monopoly  within  certain  limits  (^^.,  monopoly 
as  the  word  is  at  present  used,  meaning  unified 
control  enough  to  hold  competitors  well  in 
check,  as  evidenced  by  the  power  to  put  prices 
higher  than  former  competitive  rates  while  still 
64 


Combination  and  Monopoly 

excluding  nearly  all  competitors),  as  has  been 
intimated,  may  be  secured  simply  by  the  pos- 
session of  large  capital.  This  power  to  get 
higher  rates  depends  generally  upon  the  ability 
to  put  goods  on  the  market  without  loss  at 
lower  rates,  if  need  be,  than  can  its  rivals. 

A  large  combination,  controlling  from  75  per 
cent,  upward  of  the  output,  with  its  manufac- 
turing plants  favorably  located  in  different  sec- 
tions of  the  countr)',  would  certainly  have  a 
decided  advantage  in  freight  rates,  especially  if 
its  products  were  bulky,  over  any  competitor 
who  would  set  up  in  business,  unless  that  com- 
petitor were  to  enter  the  contest  with  substan- 
tially equal  capital.  If  such  a  rival  entered 
the  field,  there  would  be  in  operation  manu- 
facturing plants  which,  on  the  whole,  could 
readily  supply  one-half  more  product  than  the 
country  needed.  It  may  readily  be  granted  that 
if  capital  were  on  hand  to  be  invested  in  such 
large  amounts,  the  new  organization  could  force 
the  old  combination  to  sell  at  former  competitive 
rates  or  lov/er.  Those,  however,  who  take  the 
position  that  potential  competition  will  prevent 
prices  from  going  at  all  above  former  competi- 
tive rates,  overlook  the  fact  that  new  capital  is 
5  65 


The  Trust  Problem 

not  at  all  likely  to  be  invested  under  such  cir- 
cumstances, unless  the  profits  of  the  combination 
are  put  very  high  indeed.  The  reason  for  it  is 
perfectly  evident.  It  is  absolutely  certain  that, 
if  competition  of  that  kind  is  tried,  prices  will  be 
forced  down  not  merely  to  the  normal  competi- 
tive rates  among  small  manufacturers,  but  far 
below  that,  and  those  investing  their  capital  for 
purposes  of  competition  are  certain  to  make, 
instead  of  the  high  profits  of  the  existing  com- 
bination, very  low  profits  or  none  at  all. 

The  same  situation  exists,  regarding  the  ad- 
vantages of  a  large  organization  with  branches 
in  different  parts  of  the  country  in  the  possibility 
of  its  lowering  prices  to  cost  or  lower  in  special 
localities,  for  the  sake  of  forcing  out  its  smaller 
rivals,  while  keeping  prices  elsewhere  above 
competitive  rates  among  small  manufacturers. 
This  power  of  destructive  competition  alone, 
which  may  depend  solely  upon  its  large  capital 
shrewdly  invested,  is  sufficient  to  enable  it 
to  crush  out  any  small  rival.  On  the  other 
hand,  if  a  rival  powerful  enough  to  meet  its 
cuts  in  substantially  all  markets  were  to  enter 
the  contest,  it  would  be  with  the  absolute  cer- 
tainty that,  instead  of  securing  high  prices  and 
66 


Combination  and  Monopoly 

the  consequent  high  profits  of  the  existing  com- 
bination, the  result  must  inevitably  be  a  com- 
petition so  fierce  that  prices  would  be  forced 
below  usual  competitive  rates,  and  profits 
would  entirely  disappear.  If  it  be  suggested 
that  such  competition  might  be  started  with  the 
idea  of  selling  out  to  the  combination,  the  fact 
still  remains  that  this  enlarged  combination,  or- 
ganized with  the  certainty  that  it  would  possess 
plants  sufficient  to  supply  considerably  more 
than  the  normal  demand  of  the  country  at  re- 
munerative rates  for  a  period  of  years,  would, 
in  all  probability,  make  low  profits  on  the  total 
capital  invested.  If  it  attempted  to  make  high 
ones,  its  prices  would  need  to  be  put  so  high 
that  still  other  competitors  would  enter  the 
lists,  and  in  course  of  time  a  reorganization 
must  take  place  which  must  result  in  great  loss 
of  capital.  This  ultimate  result  will  make  the 
first  strong  would-be  competitors  wary. 

This  same  line  of  argument  applies  to  prac- 
tically all  of  the  advantages  that  are  to  be 
secured  by  a  large  industrial  plant.  The  only 
difference  between  the  large  business  and  the 
capitalistic  monopoly  is,  after  all,  one  of  size 
and  power  which  come  from  capital.  A  large 
67 


The  Trust  Problem 

manufacturing  establishment  which  does  not 
supply  more  than  lo  per  cent,  of  the  output 
of  the  country  may,  perhaps,  as  regards  the 
division  of  labor  in  the  manufacturing  plant 
itself,  be  able  to  manufacture  as  cheaply  as  a 
great  combination  which  controls  90  per  cent, 
of  the  output.  On  the  other  hand,  in  many 
lines  of  industry,  it  does  not  have  the  same 
facilities  for  marketing  its  product,  owing  to 
increased  cost  of  transportation  and  a  relative 
increase  in  the  cost  of  advertising.  Its  power 
of  competition  is  also  smaller,  since  it  cannot 
so  readily  make  cuts  in  special  localities  against 
small  competitors  while  keeping  up  its  prices 
elsewhere,  and  since,  also,  supplying  so  small  a 
part  of  the  market,  it  cannot  get  its  prices  even 
temporarily  above  normal  competitive  rates. 
Neither  can  it  secure  the  numerous  other  advan- 
tages of  a  great  combination  which  have  already 
been  cited. 

This  element  of  fear  on  the  part  of  the  small 
would-be  competitor,  who  knows  that  he  can 
be  crushed  out,  is  the  influence  which  keeps 
him  from  investing  his  capital  until  the  com- 
bination is  securing  considerably  more  for 
its  product  than  competitive  rates  among  small 
68 


Combination  and  Monopoly 

manufacturers.  The  certainty  which  keeps 
the  large  would-be  competitor  out,  even  when 
prices  are  considerably  above  such  competitive 
rates,  is  that  after  he  has  entered  the  busi- 
ness the  existing  combination  must  force 
the  competitive  fighting  so  hard  that  profits 
will  entirely  disappear  during  the  contest ;  and 
the  knowledge  that  if  a  combination  with  the 
competitor  is  made,  it  must  be  with  so  large 
a  capital  and  so  much  surplus  productive  capac- 
ity that  even  for  a  goodly  time  in  the  future  the 
profits  must  be  comparatively  low,  or  more 
probably  non-existent;  while  the  endeavor  to 
make  profits  would  push  prices  up  again  which 
might  tempt  in  new  rivals. 

The  only  competition  that  is  likely  to  prove 
effective,  if  any  does,  is  that  from  another  great 
combination  in  a  collateral  line  of  work.  For 
example,  a  great  steel  combination  might  effec- 
tively add  to  its  plants  some  tin-plate  mills. 
This  movement  has  already  begun,  both  in  the 
way  of  competition  and  of  combinations  which 
attempt  to  include  all  steps  of  manufacture  from 
the  mine  to  the  highly  finished  product.  Such 
combinations  will  probably  extend  still  further; 
but  this  fact  does  not  change  the  principles  laid 
69 


The  Trust  Problem 

down.  It  simply  points  to  larger  consolida- 
tions. 

It  will  thus  be  seen  that  we  may  make  prop- 
erly a  distinction  between  merely  large  capital 
and  capital  large  enough  to  give  an  organization 
a  virtual  monopoly.  It  also  seems  certain  that 
the  sources  of  savings  of  a  great  combination, 
added  to  this  fear  of  the  attacks  by  great  cap- 
ital, are  sufficient,  in  spite  of  potential  competi- 
tion, to  enable  a  large  combination  to  secure 
permanently  under  existing  laws  profits  consid- 
erably above  those  which  could  be  secured  under 
a  competitive  system  of  smaller  men,  although 
not  so  high  as  might  readily  be  secured  by  a  legal 
monopoly  or  by  a  natural  monopoly.  This  fact 
seems  to  justify  the  use  of  the  expression  "  cap- 
italistic monopoly,*'  although  of  course  one  may 
readily  concede  that  the  power  of  monopoly  in 
this  case  is  not  so  complete  as  in  the  others. 

One  may  grant  still  further  that  experience  so 
far  does  seem  to  show  that  these  larger  combi- 
nations have  ordinarily  pushed  their  prices  so  far 
above  usual  competitive  rates  that  other  capital 
has  entered  the  field  and  pushed  prices  from 
time  to  time  back  to,  or  often  below,  former  vom- 
petitive  rates.  On  the  whole,  however,  the  fact 
70 


Combination  and  Monopoly 

that,  during  the  twelve  years  of  its  existence, 
the  American  Sugar  Refining  Company  (with 
capital  stock  not  a  little  watered,  if  one  judges 
on  the  basis  of  cost  of  reproduction  and  running 
cash  capital)  for  more  than  nine  of  these  years 
has  been  able  to  keep  its  margin  between 
raw  and  refined  sugar  considerably  above  the 
former  competitive  margin,  and  has  paid  divi- 
dends of  7  per  cent,  on  its  preferred  stock  and 
12  on  its  common  stock,  while  laying  up  a 
surplus,  seems  to  show  that  its  large  capital 
has  secured  more  than  former  competitive 
prices,  and  that  It  has  had  certain  monopolistic 
power.  The  nature  of  competition  between 
large  competitors  as  compared  with  that  among 
small  rivals  is  considered  at  length  in  the  chapter 
on  Prices. 

The  assertion  made  that  the  Sugar  Combina- 
tion has  also  received  special  favors  from  the 
railroads  may  or  may  not  be  true.  It  certainly 
has  not  been  proved,  while  the  other  reasons, 
and  the  undeniable  facts  regarding  the  Increase 
in  the  margin  between  raw  and  refined  sugar, 
as  shown  in  the  chapter  on  Prices,  furnish  suf- 
ficient cause  for  the  high  dividends.  A  some- 
what similar  assertion  may  be  made  regarding 


The  Trust  Problem 

the  Standard  Oil  Company.  It  was  doubtless 
true  that  in  earlier  years  it  received  great  favors 
from  the  railroads.  It  is  possible  that  it  has 
received  special  favors  from  the  railroads  at 
times  since,  but  it  has  not  been  proved  that 
such  favors  in  the  form  of  discriminations  (ex- 
cept those  coming  directly  from  its  large  capi- 
tal, which  enables  it  so  to  locate  refineries  and 
supply  markets  that  it  has  an  advantage)  have 
been  received  to  any  material  extent,  if  at  all, 
of  late  years,  while  it  has  been  proved  that  its 
profits  have  been  much  greater  during  these 
later  years  than  before. 

The  other  advantages  claimed  for  the  capital- 
istic monopoly,  in  crushing  competitors  by  local 
cuts  in  prices,  in  transportation,  and  in  other 
ways  that  are  perfectly  legal  and  normal  in  their 
nature,  however  unjust  they  may  be,  certainly 
seem  in  themselves  enough  to  explain  part  at 
any  rate  of  its  high  profits.  Similar  experiences 
are  found  in  the  cases  of  other  combinations 
of  lesser  note  ;  and  yet  it  ought  to  be  repeated 
that  so  far  most  combinations  have  overreached 
and  have  paid  the  penalty  of  trying  to  secure  ex- 
orbitant profits.  More  experience  is  needed  to 
teach  most  of  them  the  art  of  permanent  mo- 
72 


Combination  and  Monopoly 

nopoly — an  art  that,  when  it  is  learned,  will  need 
to  be  kept  under  careful  control  by  society. 

Even  as  regards  the  special  discriminating 
favors  that  are  mentioned  by  those  who  believe 
that  there  is  no  such  thing  as  capitalistic  mo- 
nopoly, it  might  readilv  enough  be  claimed  that 
those  special  favors  in  themselves  are  secured 
only  by  virtue  of  the  power  of  large  capital,  but 
that  would  be  a  technical  claim  which  need  not 
be  made. 

Possibly  the  chief  influence  in  the  long  run 
in  promoting  combinations  of  capital,  as  well  as 
their  most  far-reaching  effect,  is  the  element  of 
personal  ambition  which  is  fostered  by  monopoly. 
There  can  be  no  doubt  that,  in  the  case  of 
the  larger  industrial  combinations,  the  belief 
on  the  part  of  the  managers  that  a  virtual 
monopoly  can  be  secured,  is  a  powerful  ele- 
ment toward  bringing  about  their  formation. 
The  pride  of  power,  and  the  pleasure  which 
comes  from  the  exercise  of  great  power,  are 
in  themselves  exceedingly  attractive  to  strong 
men.  As  one  with  political  aspirations  will 
sacrifice  much  and  take  many  risks  for  the 
sake  of  securing  political  preferment  in  order 
that  he  may  in  this  way  rule  his  fellows, 
73 


The  Trust  Problem 

so  a  successful  organizer  of  business  derives 
keen  satisfaction  from  feeling  that  he  is  prac- 
tically directing  alone  the  destinies  of  a  great 
people,  so  far  as  his  one  line  of  business  is  con- 
cerned. Mr.  Havemeyer  says  that  his  ambition 
is  to  refine  the  sugar  of  the  American  people. 
Mr.  Gates  says  that  it  was  the  ambition  of  the 
organizers  of  the  American  Steel  and  Wire 
Company  to  control  the  wire  output  of  the 
world.  One  cannot  say  that  these  ambitions 
are  not  as  worthy  as  those  of  politicians,  and 
as  natural.  No  one  can  question  that  these 
elements  of  personal  satisfaction  and  pride  are 
most  powerful  factors  in  all  lines  of  social  in- 
tercourse, and  this  pride  could  not  be  gratified 
in  business  short  of  the  belief  on  the  part  of 
these  men  that  they  can  secure  a  practical  mo- 
nopoly. This  ambition  will  not  be  gratified 
by  the  control  of  merely  a  very  large  busi- 
ness. Napoleon  was  not  content  to  be  the 
head  of  a  great  state.  His  ambition  would 
brook  no  rival.  May  not  the  ambition  of  a 
sugar  king  or  a  petroleum  magnate  well  be  of 
like  imperial  nature,  though  in  a  more  re- 
stricted field  ? 

Connected  with  this  belief  in  the  power  of 
74 


Combination  and  Monopoly 

monopoly  within  the  home  market  is  that  of  the 
ability  of  the  great  combination  to  enter  new, 
and  especially  foreign,  markets.  Much  more 
capital  is  required  to  introduce  into  a  foreign 
market  a  special  product  than  would  be  required 
for  the  extension  of  the  sale  of  that  product 
within  one's  home  country.  The  power  of 
great  capital  thus  enables  the  combination  to 
extend  its  trade  as  could  otherwise  not  be  done, 
although  this  power  by  no  means  necessarily 
implies  monopoly.  The  American  Tobacco 
Company  has  developed  a  great  market  in 
Japan,  India,  and  throughout  the  Far  East. 
In  some  instances  even,  it  is  said,  it  has  been 
forced  practically  to  create  the  taste  for  tobacco 
and  to  break  down  religious  scruples  in  order  to 
introduce  its  product.  One  may  question  the 
value  to  those  peoples  of  this  "  educated  taste  '* ; 
one  cannot  question  the  skill  and  power  needed 
to  accomplish  the  result.  The  Standard  Oil 
Company  has  pushed  its  products  into  practi- 
cally all  the  markets  of  the  world.  In  neither 
case  could  these  industries  have  so  expanded 
without  the  possession  of  very  large  capital; 
and  this  ability  to  manage  the  foreign  market 
in  conjunction  with  the  home  market,  is  beyond 
75 


The  Trust  Problem 

doubt  an  advantage  of  the  large  organization 
which  the  small  competitor  does  not  possess. 
The  possession  of  a  secure  foreign  market  gives 
the  large  manufacturer  still  further  power  in 
handling  the  home  market,  so  as  to  give  him  a 
virtual  monopoly. 

Granting,  then,  all  that  can  be  said  with  ref- 
erence to  the  special  advantages  that  come  from 
legal  monopolies  and  from  natural  monopolies, 
it  still  seems  reasonable  to  believe  that  without 
them  what  must,  under  the  present  usage  of 
terms,  be  called  monopoly,  does,  through  the 
power  of  capital,  exist,  temporarily  at  least;  and 
apparently  it  may  exist  permanently,  exerting,  if 
it  wishes,  some  if  not  all  of  the  power  exercised 
by  other  monopolies,  and  needing  like  them 
the  restraining  hand  of  the  state  through  courts 
and  legislatures  to  prevent  abuse.  The  term 
"  capitalistic  monopoly  "  has  been  given  to  this 
kind  of  business  organization,  and  until  a  better 
expression  is  found,  it  seems  well  to  make  use 
of  that. 


76 


CHAPTER   V 

PROMOTER    AND    FINANCIER 

If  several  different  firms  or  corporations  are 
to  combine  into  one,  or  if  a  large  corporation  is 
to  be  organized,  it  is  ordinarily  true  that  some 
individual  must  undertake  the  task  of  carrying 
on  the  negotiations  among  the  different  estab- 
lishments or  individuals  concerned,  of  providing 
a  plan  of  organization,  and  of  persuading  the  dif- 
ferent individual  owners  that  it  is  to  their  ad- 
vantage to  enter  into  the  combination  on  the 
terms  suggested.  This  persuasive  optimist  who 
can  succeed  in  convincing  each  that  it  is  for  his 
interest  to  join  the  organization  is  the  promoter. 

In  the  organization  of  many  of  our  later  in- 
dustrial combinations,  the  large  pay  of  the  pro- 
moter has  come  directly  or  indirectly  through 
the  issuance  of  watered  stock.  To  see  fully 
the  common  practices  in  connection  with  such 
work,  we  may  profitably  sketch  hastily  in 
review  the  more  usual  processes  and  forms  of 
organization  of  corporations. 
77 


The  Trust  Problem 

A  certificate  of  stock  is  essentially  a  receipt 
for  a  certain  amount  of  capital  paid  into  a  com- 
pany to  enable  it  to  carry  on  business.  This 
capital  Is  divided  into  shares,  usually  of  $ioo 
each,  and  the  certificates  of  stock  stand  for  a 
certain  number  of  shares.  It  is  ordinarily  sup- 
posed that  the  certificates  of  stock  represent 
capital  paid  in  cash  or  an  equivalent  of  cash,  so 
that  ten  shares  of  stock  would  represent  $i,ooo 
in  cash  or  in  an  equivalent  of  cash.  If  stock 
is  issued  only  for  cash,  there  is  little  likelihood 
of  injustice  being  done,  or  of  cither  the  inves- 
tors in  the  stocks  or  those  wlio  are  doing  busi- 
ness with  the  company  being  deceived  with 
reference  to  the  terms  on  which  the  business  is 
organized. 

In  most  cases,  however,  when  a  company  is 
organized,  considerable  amounts  of  property 
need  to  be  purchased,  either  land,  or  buildings, 
or  tools,  or  property  in  some  other  form,  adapted 
for  carrying  on  the  business.  In  many  cases 
persons  who  wish  to  invest  their  money  in  the 
or2:anization  are  themselves  the  owners  of  this 
desired  property.  In  consequence,  it  is  a  mat- 
ter of  convenience  that  shares  be  issued  directly 
or  indirectly  for  this  property  instead  of  for 
7S 


Promoter  and  Financier 

cash.  Sometimes,  to  avoid  the  appearance  of 
issuing  stock  for  property,  the  managers  of  the 
company  agree  upon  a  price  in  stock  at  par 
value  at  which  a  special  piece  of  property  will 
be  purchased.  The  managers  then  go  through 
the  form  of  handing  their  checks  to  the  property 
owners  for  the  sum  agreed  upon,  and  receiving 
in  turn  the  checks  for  an  equal  amount  of  the 
owners  of  the  property  for  stock  issued  then  and 
there.  In  a  late  case  certified  checks  of  a  lead- 
ing Trust  Company  were  used  to  pay  for  the 
properties — a  loan  for  the  amount  for  one  day 
having  been  made  for  that  purpose — and  the 
checks  of  the  mill-owners  paid  the  loan  the 
next  day.  If  the  property  is  tangible,  such  as 
land  or  buildings,  and  the  estimate  placed  upon 
its  value  is  conservative  and  fair,  there  seems 
to  be  no  reason  why  the  shares  should  not  be 
issued  directly  for  this  property,  if  there  were 
no  danger  of  injury  to  any  person.  Likewise, 
if  the  property  is  intangible,  as  a  patent  or  a 
copyright,  or  possibly  the  good-will  of  a  busi- 
ness, its  value  may  be  as  great  as  that  of  land 
or  buildings. 

Naturally  the  inventor  and  the  promoter  are 
hopeful  of  large  profits,  and  will  therefore  set 
79 


The  Trust  Problem 

a  high  price  upon  the  patent.  If,  as  is  often 
the  case,  the  invention  proves  a  successful  one, 
the  patent  may  prove  to  be  worth  more  capital 
than  w^as  estimated  at  the  beginning,  and  shares 
of  stock  therefore  issued  in  payment  for  it 
will  be  worth  more  than  their  par  value  in 
cash.  On  the  other  hand,  if  the  undertaking 
proves  a  failure,  there  will  be  no  tangible  prop- 
erty left  against  which  the  shares  were  issued, 
and  the  shares  themselves  may  become  value- 
less. In  a  case  like  this,  where  the  organiza- 
tion is  founded  chiefly  on  hope,  there  are  great 
opportunities,  and  the  temptations  are  also  very 
great  to  issue  stock  to  large  amounts,  even 
though  the  hopes  are  not  well  founded. 

It  may  be  that  in  other  cases  the  services  of 
some  individual  peculiarly  skilled  in  the  busi- 
ness may  be  taken  in  lieu  of  cash.  Under  the 
partnership  form  of  doing  business,  it  is  not  in- 
frequently the  case  that  one  partner  contributes 
capital  in  the  form  of  cash  or  tangible  property 
equivalent  to  cash,  while  another  partner  con- 
tributes his  skill  and  time  in  the  form  of  ser- 
vices, the  two  partners  dividing  the  profits 
equally.  Likewise  in  the  formation  of  a  cor- 
poration: one  individual,  whose  knowledge  or 
80 


Promoter  and  Financier 

skill  or  services  are  thought  to  be  peculiarly 
valuable  to  the  business,  may  have  allotted  to 
him  in  the  organization  of  the  cornpany  a  cer- 
tain number  of  shares  of  stock  for  the  services 
which  he  is  to  perform  for  the  organization  in 
the  future;  or,  if  he  is  a  promoter  whose  work 
has  been  of  special  service  in  putting  the  or- 
ganization into  a  situation  to  earn  large  profits, 
stock  may  be  issued  to  him  in  payment  for  ser- 
vices already  performed.  Some  of  our  States 
forbid  the  issuance  of  stock  for  services ;  others 
permit  it.  It  is  readily  seen  how  a  skilful  pro- 
moter, who  may  have  succeeded  in  bringing 
together  a  large  company  whose  profits,  on  ac- 
count, it  may  be,  of  some  monopolistic  feature, 
bid  fair  to  be  large,  may  readily  assume  that  his 
services  have  been  of  great  value  to  the  com- 
pany, and  receive  a  large  amount  of  stock  in 
consequence.  Here  again,  however,  the  stock 
is  issued  largely  on  hope,  and  its  value  may 
partake  of  the  fleeting  nature  of  its  foundation. 
If  a  business  is  so  profitable  that  it  can  earn 
considerably  more  than  the  rate  of  interest  com- 
mon in  the  locality  "upon  well-secured  loans,  it 
may  be  wise  for  its  managers  to  borrow  money 
to  enlarge  the  business.  If  a  firm  or  corpora- 
6  8i 


The  Trust  Problem 

tion  can  earn  lo  percent,  upon  capital  invested, 
it  is  surely  profitable  for  it  to  increase  business 
so  long  as  these  earnings  continue.  Even 
though  a  half  of  the  capital  required  to  furnish 
these  earnings  may  have  been  borrowed  at  6  per 
cent.,  there  has  been  a  net  gain  of  4  per  cent. 
When  the  expansion  of  a  business,  or  even  per- 
haps its  present  success,  depends,  therefore,  upon 
the  handling  of  comparatively  large  sums  of 
money,  it  is  the  usual  custom  to  borrow  a  con- 
siderable portion  of  this  capital.  Indeed  it  is 
not  unusual  for  public  service  corporations,  such 
as  railroads,  gas  companies,  and  other  like  in- 
stitutions, which  possess  some  natural  monop- 
oly, or  which  have  the  grant  of  some  franchise 
that  practically  gives  a  monopoly  of  a  certain 
line  of  business,  to  borrow  enough  capital  to 
pay  the  entire  cost  of  building  the  plant,  whether 
railroad  or  factory.  If  the  establishment  can 
pay  anything  more  than  the  regular  interest  on 
the  debt  thus  created,  all  of  the  surplus  may  go 
as  profits  to  the  stockholders,  the  persons  in 
whom  the  legal  title  of  the  road  rests.  It  is 
not  at  all  uncommon  for  our  street  railways  or 
our  railroads  to  be  in  debt — that  is,  to  be  bonded 
— to  an  amount  fully  equal  to  the  entire  cost  of 
82 


Promoter  and  Financier 

the  road  and  its  equipment.  It  is  customary 
also  in  such  cases  for  stock  to  be  issued  to  an 
amount  at  least  equal  to  the  cost  of  building,  so 
that  the  railroad  thus  built,  which  can  pay  the 
interest  on  its  bonds  and  pay  dividends  on  its 
stock,  gives  to  the  first  holders  of  the  stock  a 
pure  profit  to  the  extent  of  whatever  the  money 
value  of  the  stock  may  come  to,  as  well  as  a 
regular  annual  profit  of  whatever  dividends  may 
be  paid.  This  issuance  of  stock  beyond  the 
cost  value  of  the  road  is,  of  course,  what  is 
generally  known  as  stock  watering. 

The  new  industrial  combinations,  which  are 
believed  by  many  of  their  organizers  and  pro- 
moters to  be  able  so  to  control  the  conditions 
of  the  business  that  they  may  possess  a  virtual 
monopoly,  are  also  in  many  cases  in  a  position 
to  borrow  in  some  form  or  other  a  large  part  of 
the  capital  needed  for  the  creation  and  carrying 
on  of  the  business,  and  to  leave  their  stock 
partly  or  wholly  as  a  bonus  in  the  hands  of 
those  who  have  organized  the  company,  to  draw 
dividends  upon,  provided  the  company  can  earn 
more  than  the  interest  upon  its  bonds  and  a 
small  amortization  fund. 

Under  the  laws  of  our  States,  of  course,  a 
83 


The  Trust  Problem 

firm  or  corporation  which  fails  to  pay  the  inter- 
est on  its  debts  is  adjudged  insolvent,  and  is 
placed  in  the  hands  of  a  representative  of  its 
creditors,  to  be  managed  in  their  interest.  If  a 
business  is  more  or  less  speculative  in  its  nature 
and  is  heavily  indebted,  there  is  always  danger 
that  in  some  period  of  depression  it  may  fail  to 
pay  interest  on  its  bonds,  and  may  thus  have 
the  management  taken  out  of  the  hands  of 
its  directors.  In  consequence  of  this  danger, 
it  has  been  customary  of  late  years  for  those 
organizing  the  somewhat  speculative  industrial 
combinations  to  issue  certain  classes  of  pre- 
ferred stock  in  lieu  of  bonds.  For  example,  a 
company,  the  cost  value  of  whose  plants  was 
not  less  than  ;^500,ooo,  might  issue  preferred 
stock  to  the  extent  of  $500,000,  representing 
substantially  cash  to  that  amount.  If  the  busi- 
ness were  fairly  well  managed,  it  might  be  ex- 
pected that  there  would  be  no  trouble  whatever 
in  paying  some  interest — say  6  or  7  per  cent. — 
upon  this  amount  of  capital.  Persons  buying 
the  preferred  stock  might  therefore  be  assured 
that  their  investment  would  be  substantially  as 
safe  as  if  the  corporation  had  borrowed  that 
much  money  and  issued  bonds  in  its  stead.  In 
84 


Promoter  and  Financier 

case  the  company  should  fail  in  any  one  year  to 
earn  the  full  amount  of  the  6  or  7  per  cent,  in- 
terest mentioned  as  due  the  holders  of  preferred 
stock  before  any  profits  are  paid  to  holders  of 
the  common  stock,  the  company  would  not  be 
adjudged  bankrupt,  as  in  the  case  of  the  issuance 
of  bonds,  but  the  management  of  the  property 
would  still  remain  in  the  hands  of  the  stock- 
holders through  their  directors  as  before. 

The  preferred  stock  is  sometimes  given  the 
still  further  advantage  of  being  cumulative — 
that  is,  if  in  any  year  or  series  of  years  the  com- 
pany fails  to  pay  the  dividends  mentioned  in  the 
conditions  upon  which  the  stock  is  issued,  say 
the  6  or  7  per  cent.,  the  amount  falling  short 
remains  as  a  charge  upon  the  future  profits  of  the 
organization,  and  no  dividends  can  be  paid  to  the 
holders  of  the  common  stock  until  after  this 
charge  has  been  met.  In  this  way  preferred  stock 
becomes  substantially  as  secure  in  all  particulars 
as  bonds,  unless  there  should  be  a  later  bond 
issue.  Practically  the  only  difference  is  that 
in  the  case  of  the  failure  of  the  preferred  stock 
to  secure  its  dividends,  the  management  of  the 
company  remains  in  the  hands  of  the  Board  of 
Directors ;  whereas  in  the  case  of  failure  to  pay 
85 


The  Trust  Problem 

interest  on  bonds,  the  management  of  the  com- 
pany is  placed  in  the  hands  of  a  receiver. 

As  has  been  intimated,  a  large  proportion  of 
the  new  industrial  combinations  issue  preferred 
stock  instead  of  bonds,  the  preferred  stock  often 
representing  what  is  supposed  to  be  the  fair  cash 
value  of  the  plants  themselves.  For  each  share 
of  preferred  stock  there  is  also  frequently  issued 
to  the  holder  thereof  one  or  more  shares  of 
common  stock  as  a  bonus,  which  may  fairly  be 
considered  '*  water,"  and  which  takes  the  place 
of  the  common  stock  so  often  issued  by  public 
service  corporations  when  the  cost  of  building 
has  been  substantially  raised  through  the  selling 
of  bonds.  If  the  company  should  be  success- 
ful in  making  large  profits,  dividends  will  be 
paid  on  the  common  stock  in  proportion  to  its 
degree  of  success.  If  the  company  is  less  suc- 
cessful, while  holders  of  the  common  stock  will 
receive  no  dividends,  they  will  still  have  a  voice 
in  the  management  or  possibly  indeed  the  entire 
management  of  the  business  of  the  corporation, 
and  the  fluctuating  chances  for  future  business 
and  future  profits  will  give  the  common  stock  a 
more  or  less  range  of  value  as  time  goes  on. 

It  is  largely  through  his  skill  in  arranging 
86 


Promoter  and  Financier 

all  these  details  of  organization  and  of  Issuance 
of  stock  that  the  promoter  gets  his  profit.  In 
most  cases,  as  it  has  been  his  special  labor  to 
bring  together  the  corporation  or  the  combina- 
tion of  corporations  whose  profits  are  largely  a 
matter  for  the  future  to  determine,  his  pay  is 
justly  enough  given  him  in  part  or  altogether  in 
the  more  speculative  securities  of  the  company 
organized — that  is,  in  common  stock.  For  ex- 
ample, testimony  given  before  the  United  States 
Industrial  Commission  seemed  to  show  that  in 
the  organization  of  the  Standard  Distilling  and 
Distributing  Company,  for  each  $100,000  cash 
value  that  was  secured,  in  the  form  of  either 
cash  or  tangible  property,  there  was  issued  to 
the  promoter  $150,000  in  common  stock.  In 
addition  to  this,  $100,000  in  preferred  stock 
and  $100,000  in  common  stock  were  issued  to 
the  seller  of  the  property  who  entered  into 
the  combination,  and  $100,000  preferred  and 
$150,000  of  common  stock  were  issued  to  the 
underwriters,  the  nature  of  whose  services  will 
be  spoken  of  hereafter.  It  will  be  noted  that 
each  $100,000  cash  valued  property  was  pre- 
sumed, if  dividends  were  to  be  paid,  to  earn 
interest  on  $600,000.  Would  the  attempt  to 
87 


The  Trust  Problem 

do  this  put  prices  up,  especially  if  the  organi- 
zation had  some  monopolistic  power  ? 

An  account  of  the  organization  of  the  Ameri- 
can Tin  Plate  Company  will  show  one  way  in 
which  a  promoter  may  receive  his  pay.  Most 
of  the  manufacturers  of  tin  plate  in  the  United 
States,  feeling  severely  the  lessening  of  profits 
that  came  from  competition  and  depression  in 
business,  thought  it  wise  to  organize  a  combina- 
tion which  should  practically  control  the  market. 
To  that  end  they  asked  Judge  William  H. 
Moore,  of  Chicago,  to  aid  them.  He  visited 
the  different  tin  plate  manufacturers  and  secured 
an  option  of  purchase  for  cash  at  a  fixed  sum 
upon  the  plants  of  each  one  of  the  firms  or  cor- 
porations which  contemplated  entering  the  com- 
bination. After  these  options  had  been  secured, 
Judge  Moore  organized  a  company  with  an 
authorized  capitalization  of  $50,000,000,  of 
which  about  ;^46,ooo,ooo  were  later  issued. 
For  this  capital  stock  there  were  to  be  furnished 
to  the  company  some  $4,000,000  in  cash  as 
running  capital  and  the  plants  of  all  of  the 
companies  which  entered  into  the  agreement. 
It  was  understood  that  the  cash  options  on 
the    plants   amounted   to   something    less   than 


Promoter  and  Financier 

;^i8, 000,000,  although  as  the  contract  was  made 
with  each  establishment  separately,  and  as  each 
one  of  the  options  was  a  purely  private  matter 
between  the  promoter  and  the  person  selling, 
it  was  not  publicly  known  exactly  what  sum 
was  agreed  upon  for  the  value  of  each  separate 
plant. 

It  was  understood  that  in  most  cases  the 
choice  was  given  to  each  company  to  receive 
for  its  plants  either  cash  or  preferred  stock,  of 
which  the  par  value  should  be  an  equal  amount 
with  that  of  the  cash  option,  together  with  a  like 
amount  of  common  stock  as  a  bonus.  In  this 
way  it  was  supposed  that  about  ^18,000,000 
of  preferred  stock  and  the  same  amount  of 
common  stock  were  issued,  as  against  the 
properties  and  cash,  whereas  ;^i 0,000, 000  more 
of  common  stock  went  to  the  promoter  to  pay 
him  for  his  services  and  for  all  of  the  expenses 
of  getting  the  organization  together.  It  was, 
of  course,  necessary  that  organization  fees, 
lawyers*  fees,  etc.,  be  paid.  It  was  also  prob- 
ably true  that  in  order  to  raise  the  necessary 
cash  certain  commissions  had  to  be  paid  to 
bankers  and  others  who  advanced  it.  It  might 
have  been  also  true  that,  instead  of  the  pre- 
89 


The  Trust  Problem 

ferred  and  common  stock  being  taken  on  the 
terms  suggested  before,  better  terms  in  certain 
instances  had  to  be  given,  and  it  is  even  possi- 
ble that  in  other  instances  less  favorable  terms 
may  have  been  accepted.  Inasmuch,  however, 
as  at  the  time  that  the  company  was  organized 
one  share  of  preferred  and  one  share  of  com- 
mon stock  together  sold  for  considerably  more 
than  ;^ioo,  it  seems  fair  to  assume  that  the  pro- 
moter had  the  opportunity  of  making  very  large 
profits  indeed  out  of  the  ^10,000,000  in  com- 
mon stock  assigned  him  for  covering  the  cost 
of  formation  and  for  his  pay  for  services  ren- 
dered. It  will  be  noted  that  aside  from  this 
;$io,ooo,ooo,  he  had  the  opportunity  of  making 
much  more  if  he  could  make  close  enough  bar- 
gains with  those  who  entered  into  the  organiza- 
tion so  as  to  buy  their  plants  at  less  than  the 
;^i 8,000,000,  which  seems  to  have  been  gen- 
erally agreed  upon  as  the  value  of  the  plants 
with  the  cash  capital;  whereas,  on  the  other 
hand,  if  he  could  not  secure  them  for  that  sum, 
his  profits  would  be  correspondingly  dimin- 
ished. 

With    the    promoter    ordinarily    works    the 
**  financier"  or  the  underwriter.      If  the  com- 
90 


Promoter  and  Financier 

pany  is  to  be  a  success,  it  is  necessary  that  the 
stock  be  sold  in  order  that  the  needed  capital 
in  the  form  of  either  plants  or  cash,  or  both, 
be  secured  to  carry  on  the  business.  Private 
bankers  are  ordinarily  chosen  to  negotiate  the 
sale  of  stocks  and  bonds,  and  very  frequently 
they  are  persuaded  also  for  a  consideration  more 
or  less  large  to  underwrite  the  stock.  By  this 
*  *  underwriting  '  *  is  ordinarily  meant  an  agree- 
ment to  secure  the  sale,  at  a  named  price,  of  a 
certain  amount  of  the  stock  of  the  company. 
If  persons  not  connected  with  the  company 
or  the  banker  concerned  purchase  all  of  the 
stock  under  the  agreement  at  a  price  as  high 
as  that  named  in  the  contract,  the  banker  has 
no  further  responsibility.  If,  on  the  other 
hand,  all  has  not  been  sold  at  the  time  agreed 
upon,  the  banker  takes  the  remainder  at  the 
rate  mentioned  and  furnishes  the  cash  to  pay 
for  it.  In  that  case,  his  profits  or  losses  will 
depend  upon  the  price  at  which  he  may  be  able 
thereafter  to  sell  the  stock ;  or  in  case  he  holds 
it,  upon  the  dividends  that  may  be  paid  by  the 
company  in  its  regular  course  of  business.  It 
is  commonly  believed  that  the  sums  asked  by 
the  underwriter  are  as  high  or  higher  than  those 
91 


The  Trust  Problem 

of  the  promoter.  A  banker  agreeing  to  furnish 
millions  of  dollars  to  a  company  in  order  to  en- 
able it  to  enter  upon  a  line  of  busi'ness  in  the 
way  in  which  its  promoters  prefer,  often  takes, 
of  course,  considerable  risk,  and  will  wish  corres- 
ponding pay.  The  pay  of  the  underwriters  in 
the  organization  of  the  Standard  Distilling  and 
Distributing  Company  has  already  been  noted. 
High  officers  in  some  of  the  industrial  combi- 
nations have  stated  that  the  cost  of  organization, 
including  the  pay  of  the  promoter  and  financier, 
amounts  often  to  from  20  to  40  per  cent,  of  the 
total  amount  of  stock. issued,  dividends  having 
therefore,  if  possible,  to  be  paid  upon  this  amount 
of  stock  at  least  in  addition  to  that  which 
represents  the  cost  value  of  the  plants  or  the 
amounts  paid  for  them. 

Not  infrequently  the  work  of  the  financier  and 
that  of  the  promoter  are  combined,  the  profits 
depending  upon  the  terms  at  which  the  stocks 
are  bought  and  sold.  The  case  of  the  Distilling 
Company  of  America  is  one  in  point.  Its 
authorized  capital  is  $55,000,000  of  7  per 
cent,  cumulative  preferred  stock,  and  $70,000,- 
000  of  common  stock.  Of  this  total  sum, 
^31,250,000  of  preferred  stock  and  ;$46,250,- 
92 


Promoter  and  Financier 

000  of  common  stock  were  put  into  the  hands 
of  the  organizers  or  promoters  of  the  combina- 
tion for  the  purpose  of  bringing  about  the  or- 
ganization. The  company  was  incorporated  to 
purchase  and  hold  the  stocks  of  four  existing 
companies,  each  in  itself  a  combination,  and  to 
secure  control  of  certain  rye  distilleries.  The 
organizers  or  promoters  were  to  use  the  stocks 
placed  in  their  hands  to  exchange  in  certain 
named  proportions  for  the  entire  stock  of  each 
of  the  existing  combinations,  to  furnish  also  $i,- 
500,000  in  cash  for  working  capital,  and  to  buy 
two  rye  distilleries  owned  by  the  Hannis  Dis- 
tilling Company  and  a  rye  distillery  in  St.  Paul. 
A  large  proportion  of  the  stocks  of  these  differ- 
ent companies  were  as  a  matter  of  fact  secured, 
considerably  more  than  90  percent,  in  each  case. 
It  was  testified  that  the  rye  distilleries  cost  some 
$2,000,000.  If  the  entire  stocks  of  all  of  the 
four  companies  had  been  exchanged  at  the  rates 
agreed  upon,  there  would  have  remained  in  the 
hands  of  the  organizers  $10,710,000  of  pre- 
ferred and  $13,360,000  of  common  stock,  for 
which  they  were  to  secure  the  $3,500,000 
needed  for  purchasing  the  rye  distilleries  and 
furnishing  the  $1,500,000  to  be  used  forwork- 
93 


The  Trust  Problem 

ing  capital.  At  the  rate  at  which  the  stocks 
of  the  new  company  sold  very  soon  after  its 
organization,  these  stocks  would  have  given  a 
net  profit  to  the  promoters  and  financiers,  had 
they  been  able  to  sell  them  promptly,  of  from 
^3,000,000  to  $4,000,000  for  their  services; 
but  one  must  remember,  of  course,  that  the 
effect  on  the  market  of  an  attempt  to  sell  these 
promptly  would  probably  have  been  very  de- 
pressing. The  speculative  nature  of  such  a 
business  is  readily  seen,  when  one  notes  that 
the  stocks  declined  rapidly  in  value,  so  that  if 
the  organizers  had  them  left  in  their  hands  six 
months  later,  they  would  have  barely  sufficed  to 
furnish  the  $3,500,000  necessary  to  enable 
them  to  fulfil  their  contract. 

There  can  be  little  doubt  that  many  of  the 
promoters  and  financiers  have  in  the  past  agreed 
to  aid  in  the  organization  of  industrial  combina- 
tions with  the  hope  of  securing  large  profits  by 
the  sale  of  stocks  without  themselves  taking 
any  material  interest  in  the  business.  This 
method  of  furthering  combinations  has,  beyond 
question,  proved  one  of  the  greatest  evils  con- 
nected with  them,  inasmuch  as  it  has  given  a 
decidedly  speculative  turn  to  industrial  stocks, 
94 


Promoter  and  Financier 

such  as  was  found  in  the  market  for  railroad 
stocks  and  bonds  fifteen  or  twenty  years  ago. 

Those  companies  that  have  been  organized 
with  a  fair  degree  of  conservatism  have  often 
assumed  or  have  compelled  the  constituent  com- 
panies to  pay  off  all  their  debts  before  the  parent 
company  began  business.  The  effect  of  this 
policy  in  large  sections  of  the  country  has  been  to 
relieve  many  small  banks  of  the  burden  of  carry- 
ing, with  considerable  risk  at  times,  the  business 
of  these  companies.  At  the  same  time  it  has 
deprived  many  of  these  small  banks  of  their  best 
customer.  On  the  other  hand,  many  of  the 
large  city  banks,  from  underwriting  or  accepting 
as  collateral  the  stocks  of  the  new  parent  com- 
panies, find  themselves  carrying  a  heavv  burden 
which  it  is  very  difficult  to  shift.  The  instability 
of  these  securities,  with  the  large  numbers  of 
them  thrown  upon  the  market,  has  tended  during 
the  last  year  to  make  bankers  much  more  con- 
servative in  accepting  the  stocks  as  collateral  for 
loans,  or  in  attempting  to  place  the  stocks 
upon  the  market;  so  that  the  worst  period  of 
this  speculative  organization  has,  in  all  proba- 
bility, passed. 

Perhaps  the  worst  feature  from  the  social 
95 


The  Trust  Problem 

point  of  view,  connected  with  this  method  of 
promotion  of  industrial  companies,  has  been  the 
practice  (a  practice  commonly  stated  and  be- 
lieved to  be  exceedingly  common,  although 
rarely  proved)  of  securing  the  influence  of  bank 
officials — presidents,  cashiers,  or  directors — 
through  the  payment  to  themselves  individually 
of  large  amounts  of  stocks  or  even  of  cash,  to 
persuade  their  banks  to  accept  these  securities 
as  collateral  on  loans,  or  to  underwrite  the 
stocks  and  thus  furnish  cash  for  the  companies. 
It  seems  most  unfortunately  to  be  true  that  in 
many  cases  officials  of  banks  and  trust  com- 
panies have  failed  to  realize  to  the  full  the  na- 
ture of  their  trusteeship  as  it  concerns  their 
stockholders  and  depositors.  Nor  can  we  over- 
look the  indirect  influence  of  such  acts  by  these 
prominent  financiers.  The  mere  fact  that  a 
prominent  bank  or  a  successful  capitalist  is  will- 
ing to  invest  in  the  stock  of  a  company  is 
enough  to  lead  hundreds  of  small  investors  to 
follow,  often  to  their  injury.  And  beyond  the 
financial  evil,  in  the  long  run,  is  to  be  feared 
most  of  all  the  lowering  of  moral  tone  in  busi- 
ness circles  if  such  practices  were  to  continue. 
The  essence  of  successful  business  as  well  as  of 
96 


Promoter  and  Financier 

social  and  political  success  of  the  highest  type 
is  faithfulness  to  a  trust,  a  keen  sense  of  honor. 
This  evil  of  speculation,  coming  from  the 
work  of  the  promoter  and  financier,  which  has 
led  to  the  substantial  bribery  of  bank  officials 
and  to  excessive  stock  watering  on  the  part  of 
the  industrial  combinations,  is  to  be  counted 
among  the  great  evils  which  have  attended  their 
organization.  They  should  be  so  conserva- 
tively capitalized  and  managed  that  their  stocks 
will  prove  as  safe  an  investment  as  farm  mort- 
gages, and  a  far  more  convenient  one  for  the 
man  of  small  means. 
7 


97 


CHAPTER  VI 

THE    BASIS    OF    CAPITALIZATION 

So  much  has  been  said  of  late  years  with  r^ 
erence  to  the  evils  of  over-capitalization  and  of 
fraudulent  practices  in  connection  with  stock 
watering,  that  it  may  be  worth  while  to  con- 
sider briefly  the  actual  and  the  proper  basis  of 
capitalization  of  industries.  It  is  ordinarily 
assumed  in  discussion  by  those  who  are  opposed 
to  what  is  generally  called  '*  stock  watering," 
that  stock  ought  to  be  issued  for  cash  or  for  what 
is  called  the  '^  actual  cash  value  "  of  the  prop- 
erty taken.  It  is  generally  assumed  that  the 
actual  cash  value  will  represent  fairly  well  the 
cost  of  reproduction  of  the  properties  in  present 
condition  together  with  needed  running  capital 
in  the  form  of  cash  on  hand.  Such  an  issuance 
of  stock  in  an  ordinary  manufacturing  business, 
under  conditions  of  fair  competition,  will  give 
dividends  in  the  long  run  probably  not  materially 
different  from,  but  perhaps  somewhat  higher 
than  the  usual  rate  of  interest  in  the  community. 
98 


The  Basis  of  Capitalization 

It  seems  to  have  been  the  purpose  of  the  cor- 
poration law  of  Massachusetts,  and  of  some  other 
States  and  countries,  to  secure  capitalization  on 
this  basis.  The  new  law  for  Puerto  Rico,  lately 
passed  by  Congress,  takes  this  position,  and 
shows  how  conservative  it  has  tried  to  make  its 
action  on  this  subject.  In  Massachusetts,  not 
merely  must  the  directors  or  organizers  of  a 
corporation,  part  of  whose  stock  is  issued  against 
property,  make  oath  that  the  property  has  been 
received  at  its  actual  cash  value,  and  that  the 
stock  is  issued  at  this  rate  at  par,  but  the  Com- 
missioner of  Corporations  of  the  State  must  also 
certify  that  he  is  satisfied  that  this  is  the  case. 
Let  us  note  just  what  this  means.  This  is  the 
capitalization  of  the  plant  and  running  capital, 
not  necessarily  that  of  the  business  as  a  going 
concern. 

On  the  other  hand,  most  business  men  are 
of  the  opinion  that  the  value  of  any  property 
depends  upon  its  earning  capacity,  its  value  as 
"  a  going  concern,"  and  that  it  is  wise  and  just 
to  issue  stock  of  a  corporation  upon  that  basis. 
In  the  case  of  corporations,  such  as  those  men- 
tioned in  the  paragraph  above,  the  probability  is 
that  the  reproduction  value  of  the  establishment 
99 


The  Trust  Problem 

would  correspond  closely  with  the  capitalization 
of  its  earning  capacity  at  current  interest  rates. 
On  the  other  hand,  it  must  be  remembered  that 
much  higher  rates  of  profit  can  often  be  made, 
either  (<?)  in  times  of  more  than  usual  business 
prosperity,  or  {b)  under  exceptionally  skilful 
management,  or  (<:)  with  the  possession  of  con- 
siderable monopolistic  power,  from  whatever 
source  derived,  whether  the  possession  of  patents, 
or  of  exceptional  good-will,  or  of  a  very  large 
capital.  Mr.  Bryan's  dictum  that  ^'  only  in 
the  case  of  monopoly  can  you  secure  dividends 
upon  stock  that  does  not  represent  money  in- 
vested ''  is  not  always  strictly  accurate  ;  but  it 
is  so  generally  true  that  it  ought  carefully  to  be 
noted.  The  times  of  prosperity  when  this  can 
be  done  without  monopoly  may  be  fleeting.  The 
exceptional  skill  or  the  monopolistic  power  are 
likely  to  endure  for  a  longer  season.  Under 
those  circumstances,  with  any  of  these  advan- 
tages, the  corporation  might  readily  pay  divi- 
dends of  the  usual  rate  of  interest  on  a  capi- 
talization twice  or  three  times  more  than  the 
reproduction  cash  value  of  the  plants. 

Attention  is  frequently  called  to  the  case  of 
a  newspaper  with  a  tangible  property  of,  say. 


The  Basis  of  Capitalization 

;^  1 00,000.  Such  a  newspaper,  ably  edited,  with 
a  strong  constituency  of  subscribers  and  a  large 
advertising  patronage,  might  readily  pay  good 
dividends  on  ;^  1,000,000  or  more.  Why 
should  the  capitalization  not  be  placed  at 
;^ 1, 000, 000,  regardless  of  what  the  plant  might 
cost  ?  The  earning  capacity  may  be  due  largely 
to  the  skill  of  the  editor,  or  to  the  fact  of  con- 
nection with  some  political  party,  or  to  the  pecu- 
liar business  skill  of  its  advertising  manager,  or 
to  the  good  will  gained  through  many  years  of 
skilful  catering  to  the  public  taste.  Why,  it  is 
asked,  should  not  the  capitalization  be  made 
upon  its  earning  capacity  rather  than  with  ref- 
erence to  the  cost  of  the  plant  ? 

Most  business  men,  as  has  been  intimated, 
prefer  capitalization  on  the  basis  of  earning  ca- 
pacity. In  the  first  place,  if  the  dividends 
declared  seem  to  be  at  about  the  normal  rate  of 
interest,  it  conceals  the  actual  state  of  the  busi- 
ness from  all  persons  not  so  situated  that  they 
either  know  the  details  of  the  business  of  this 
special  establishment,  or  know  that  kind  of 
business  so  well  that  they  may  readily  judge  the 
profits  from  external  signs.  This  concealment 
of  large  profits  lessens  the  temptation  to  rivals 


The  Trust  Problem 

to  enter  the  business,  and  lessens  also  the  danger 
of  popular  disapproval,  which  is  often  expressed 
against  those  who  make  large  profits  upon  capital 
invested,  even  though  such  profits  may  have 
been  made  more  by  the  special  individual  skill 
of  the  manager  than  by  the  advantage  that  comes 
from  the  possession  of  capital.  A  prominent 
stockholder  in  a  large  gas  company  lately  ex- 
pressed the  fear  that  it  might  be  necessary  soon 
to  lower  the  price  of  his  gas.  The  profits  were 
becoming  too  large  to  please  the  public,  and  it 
seemed  difiicult  to  find  an  excuse  for  issuing 
more  stock,  though  such  excuses  in  the  past  had 
been  found  and  for  a  time  had  served  to  conceal 
the  rapidly  increasing  profits. 

Again,  a  large  capitalization  is  more  advan- 
tageous, provided  the  stockholders  wish  to  sell. 
If  in  any  line  of  securities,  for  example,  the 
stock  of  corporations  that  regularly  pay  divi- 
dends at  6  per  cent,  stand  at  par,  those  of 
similar  nature  and  class  of  which  the  dividends 
are  regularly  3  per  cent,  will  usually  stand  at 
more  than  50.  People  seem  to  like  to  deal  in 
large  figures,  and  there  is  also  a  greater  element 
of  speculation  present  perhaps  in  the  latter  case, 
though  either  motive  is  probably  largely  an  un- 


The  Basis  of  Capitalization 

conscious  one.  But,  because  they  will  sell  for 
more  usually,  a  large  capitalization  is  often  de- 
sired, even  by  conservative  business  men. 

Still  more  is  this  the  case  if  the  business  is 
speculative  in  its  nature.  Doubtless  the  stocks 
of  many  industries  w^hich  have  been  largely  over- 
capitalized are  more  pleasing  to  speculators  on 
that  account.  They  may  not  pay  dividends ;  it 
cannot  be  expected  that  they  will  pay  dividends 
in  the  near  future;  but  on  account  of  the  in- 
stability of  the  business,  their  fluctuations  up 
and  down  are  more  readily  affected  by  rumors 
or  by  other  slight  influences  on  the  stock  mar- 
ket —  and  speculation  flourishes  on  fluctua- 
tions. 

It  is  claimed  by  many  that  the  public  is  little 
affected  by  stock  watering,  and  has  little  inter- 
est in  the  basis  of  capitalization.  If  the  capi- 
talization is  high,  the  value  of  the  stock  will 
be  correspondingly  low,  and  vice  versa.  Busi- 
ness men  will  invest  their  money,  it  is  thought, 
on  the  basis  of  actual  values,  as  shown  by  earn- 
ing capacity,  regardless  of  the  par  value  of  the 
stocks,  and  neither  prices  nor  investors  are  ma- 
terially affected,  whatever  the  basis  of  capitali- 
zation. After  a  business  has  been  long  estab- 
103 


The  Trust  Problem 

lished  and  its  methods  of  management  are  well 
known,  this  contention  is  largely  true.  On 
the  other  hand,  when  new  corporations  are  or- 
ganized, and  only  those  who  are  closely  con- 
nected with  the  management  know  on  what 
terms  properties  are  purchased  for  which  stock 
is  issued,  there  is  great  opportunity  for  decep- 
tion. Even  a  public  statement  of  actual  earn- 
ings of  different  corporations  for  a  series  of 
years  past  may  be  so  arranged  that  the  results 
will  be  decidedly  misleading.  Average  profits 
over  a  period  of  five  years  might  well  be  lo  per 
cent.,  when  if  a  period  of  seven  years  were 
taken  the  averao-e  would  be  not  more  than  five. 

o 

Even  the  profits  of  the  last  two  years  might  be 
nil.  The  ordinary  investor,  who  has  not  had 
the  opportunity  of  studying  the  details  of  orga- 
nization, is  unable  to  judge. 

Even  capitalization  at  the  reproduction  value 
of  the  plants  may  be  as  misleading  in  many 
ways  as  capitalization  on  supposed  earning 
capacity,  because  unskilful  management  or  a 
changing  state  of  the  market  may  either  double 
the  value  of  the  plant  or  halve  it  within  a  year 
or  two,  if  we  are  to  take  as  the  basis  of  value 
what  it  might  actually  bring  in  the  market, 
104 


The  Basis  of  Capitalization 

which  depends  again,  as  has  been  intimated,  on 
its  earning  capacity. 

There  can  be  no  doubt,  too,  that  a  high 
capitalization  brings  pressure  to  bear  upon 
officers  of  corporations  to  raise  prices  of  their 
products.  Payment  of  dividends  is  likely  to 
seem  their  first  duty,  and  they  push  prices  as 
high  as  the  market  will  bear. 

The  only  just  method  of  preventing  the  evils 
which  are  likely  to  come  through  the  capitali- 
zation of  any  establishment,  is  to  place  clearly 
and  fully  before  all  investors,  at  the  time  of  the 
organization,  the  plan  of  organization  itself,  the 
amounts  actually  allowed  for  all  and  each  of  the 
properties  taken  into  the  establishment,  with  as 
complete  information  as  possible  regarding  these 
properties,  so  that  a  fair  judgment  can  be  made 
regarding  both  their  cost  and  their  earning  ca- 
pacity. In  like  manner  the  condition  of  the 
business  from  year  to  year  must  be  impartially 
set  before  the  public,  so  that  its  earning  capacity 
can  be  fairly  known.  Whatever  capitalization 
is  then  made  at  the  beginning,  the  value  of  its 
stock  will  in  the  main  be  based  upon  its  fair 
probable  earning  capacity,  while  the  changing 
conditions  of  business  from  year  to  year  being 
105 


The  Trust  Problem 

made  fully  known  would  determine  with  even 
justice  among  the  different  parties  concerned 
the  changing  values. 

The  chief  evils  of  our  over-capitalization  in 
recent  years  have  appeared  in  those  organiza- 
tions that  have  issued  stock  far  beyond  any  rea- 
sonable likelihood  of  dividends  on  the  common 
stock,  short  of  monopoly,  and  whose  promoters 
have  been  primarily,  not  business  men,  but 
gamblers. 

A  proposition  has  been  made  to  avoid  all 
evils  connected  with  capitalization  by  providing 
that  shares  of  stock,  representing  dollars  as  their 
par  value,  should  not  be  issued,  but  that  a  plan 
reported  by  a  committee  of  the  New  York  State 
Bar  Association  should  be  adopted,  which  it 
was  thought  would  afford  a  remedy  for  all  these 
evils.      The  proposition  is  as  follows: 

"  To  permit  the  formation  of  a  distinct  class 
of  business  stock  corporations,  whose  capital 
stock  may  be  issued  as  representing  proportional 
parts  of  the  whole  capital  without  any  nominal 
or  money  value. 

''  The  effect  of  such  amendment  would  be 
to  provide  for  the  measurement  of  the  interest 
or  shares  of  the  members  of  such  a  corporation 
io6 


The  Basis  of  Capitalization 

by  a  statement  of  proportion,  as  in  case  of  the 
part  owners  of  a  ship,  and  not  by  an  arbitrary 
assignment  of  money  value,  which  is  delusive 
in  the  case  of  every  corporation  whose  capital 
stock  has  a  market  value  either  more  or  less 
than  its  nominal  par  value. 

*'  Such  an  amendment,  though  somewhat 
radical,  is  not  altogether  novel.  It  embodies  a 
principle  adopted  in  corporation  laws  in  Ger- 
many. 

''  It  would  relieve  any  possibility  of  injury 
to  the  public  from  misleading  representations  as 
to  the  money  value  of  corporate  stock,  and 
would  also  relieve  from  embarrassment  con- 
scientious corporate  officers  often  compelled  to 
deal  with  legal  fiction  as  to  which  they  have  no 
personal  knowledge,  as  though  it  were  a  reality 
within  their  own  observation."  * 

The  suggestion  is  valuable  and  would  appar- 
ently prove  effective ;  but  there  is  no  general 
interest  in  a  change,  and  it  is  probably,  for 
the  present  at  least,  not  practicable. 

The  effect  of  over-capitalization  upon  prices 
will  be  discussed  briefly  in  a  later  chapter. 

*  Proceedings  of  New  York  State  Bar  Association, 
January,  1892,  p.  148. 

107 


CHAPTER   VII 

METHODS      OF     ORGANIZATION      AND 
MANAGEMENT 

Before  the  compact  combinations  of  the 
present  day  were  known,  various  forms  of  spe- 
cific agreements  among  independent  corporations 
and  individual  competitors  were  common,  such 
agreements  often  being  called  pools,  although 
the  earnings  of  the  different  companies  were  not 
put  into  one  common  stock  from  which  profits 
were  to  be  distributed. 

For  some  years  before  the  organization  of 
the  Whiskey  Trust,  competition  had  been  very 
fierce  among  the  different  distillers,  and  agree- 
ments were  usually  made  from  year  to  year 
which  fixed  the  amount  that  each  distiller  should 
produce  during  the  year.  At  other  times,  under 
agreement,  an  assessment  was  levied  which  each 
distiller  should  pay  upon  each  bushel  of  corn 
mashed,  in  order  to  export  the  goods  at  a  loss, 
and  thus,  by  relieving  the  home  market  of  its 
surplus,  make  sufficient  provision  for  selling 
io8 


Organization  and  Management 

the  domestic  production  at  a  remunerative  price. 
These  so-called  pools  were  not  stable.  Ordi- 
narily, within  a  year,  some  one  of  the  parties  to 
the  agreement  would  be  discovered  distilling 
more  than  his  proportion  of  the  normal  output, 
and  the  result  would  be  a  break  in  the  pool. 
Agreements  for  fixing  the  price  of  the  prod- 
uct or  for  dividing  territory  are  perhaps  still 
more  common.  A  noteworthy  late  case  is  that 
of  the  Addvston  Pipe  Company,*  in  which  the 
different  parties  agreed  not  to  enter  into  com- 
petition with  one  another.  The  contract 
was  to  be  carried  out  in  the  following  way : 
a  committee  consisting  of  a  representative  from 
each  corporation  entering  into  the  agreement 
set  the  price  for  each  job  of  work,  and  the  cor- 
poration that  offered  the  largest  bonus  for  the 
job,  secured  it,  the  others  putting  in  higher  bids 
to  make  an  apparent  competition.  It  will  be 
seen  that,  although  in  this  agreement  there  was 
no  uniform  fixing  of  price  or  of  profits,  com- 
petition was  done  away  with,  and  the  agreement 
may  fairly  be  considered  as  one  tending  to  cre- 
ate a  monopoly,  or,  at  any  rate,  to  bring  about 

*  United  States  v.  Addyston  Pipe  and  Steel  Co.,  et  al., 
78  Fed.  712 ;  85  Fed.  271  ;  175  U.  S.  211. 
109 


The  Trust  Problem 

all  the  evil  effects  of  a  monopoly  and  to  oppress 
the  consumers. 

An  agreement  of  a  quite  different  nature  has 
been  formed  among  coal  dealers  in  one  of  our 
cities.  A  committee  of  several  of  the  leading 
dealers  determine  the  price  at  which  coal  shall 
be  sold  by  all  wholesalers  and  retailers.  They 
also  keep  a  supervision  of  the  trade,  seeing  that 
full  weight  is  given,  that  the  quality  of  coal  is 
exactly  as  represented,  and  that  the  consumers 
are  protected  against  dishonest  dealers  as  well 
as  the  dealers  against  excessive  competition. 
If  any  dealer  cuts  the  price  to  any  of  his  con- 
sumers, he  is  heavily  fined  by  the  central  com- 
mittee. If  he  refuses  to  pay  the  fine,  an 
agreement  with  the  mines  stops  his  securing  a 
sufficient  supply  of  coal  to  meet  the  needs  of  his 
customers.  The  initial  cause  of  this  agree- 
ment was  said  to  be  excessive  competition. 
Some  of  the  dealers  finding  the  prices  so  low 
that  they  could  not  make  a  profit,  came  to  the 
conclusion  that  some  must  be  giving  light 
weight.  An  investigation  and  a  re-weighing 
of  several  loads  proved  this.  The  combination 
was  then  formed,  which  may  be  said  to  exist 
primarily  to  protect  the  dealers  and  incidentally 
no 


Organization  and  Management 

the  consumers  against  this  unfair  kind  of  com- 
petition, which  resulted  in  their  detriment. 
Prices  are  fixed  at  a  rate  which  is  said  to  give 
only  moderate  profits  to  retailers  and  whole- 
salers, and  fair  prices  to  the  consumers;  while 
the  consumers,  as  has  been  said,  are  secure 
against  light-weight  loads  and  poor  quality  of 
coal.  It  should  be  noted  that  those  who  fix 
the  ''fair*'  prices  are  interested  parties;  but 
experience  may  have  shown  them  what  is  really 
wise  and  fair  for  all.  All  those  dealers  who 
are  willing  to  conduct  their  business  fairly  and 
honorably  at  the  rates  fixed  are  allowed  to  make 
a  reasonable  profit.  Longer  experience  may 
perhaps  show  different  results.  At  present 
reports  are  favorable. 

Owing  to  the  fact  that  ordinary  pools  and 
agreements  of  the  kind  mentioned  above  cannot 
usually  be  well  enforced,  the  Standard  Oil 
Company  in  1882  organized  the  Standard  Oil 
Trust,  a  form  followed  afterward  by  the  so- 
called  Whiskey  Trust  (the  Distillers'  and  Cattle 
Feeders'  Trust),  and  also  by  the  Sugar  Trust. 
The  form  of  organization  is  substantially  this: 
the  stockholders  of  each  of  the  separate  com- 
panies assign  their  stock  to  a  certain  number 
III 


The  Trust  Problem 

of  trustees — seven  or  nine — giving  thus  an  Ir- 
revocable power  of  attorney  to  these  trustees  to 
vote  the  stock  as  they  see  fit.  The  trustees 
issue  trust  certificates  to  the  stockholders  in  lieu 
of  their  assigned  stock,  and  it  is  upon  these 
certificates  that  profits  are  divided.  All  of  the 
earnings  from  all  of  the  different  members  of 
the  combination  are  put  into  a  common  treas- 
ury, and  w^hether  one  of  the  manufacturing 
establishments  is  running  or  closed  makes  no 
difference  in  the  profits  received  by  the  stock- 
holders of  that  special  company.  The  trustees, 
by  having  in  their  hands  the  voting  power  of 
all  of  the  separate  corporations,  of  course  elect 
whatever  officers  of  the  corporations  they  see 
fit,  and  direct  thus,  as  seems  to  them  wise,  the 
affairs  of  each  separate  corporation. 

The  decision*  of  the  New  York  Court  of 
Appeals  against  the  Sugar  Trust,  declaring  that 
the  act  of  a  corporation  in  thus  putting  its  stock 
into  the  hands  of  trustees  and  abdicating  its  own 
independent  power  of  self-direction,  was  ultra 
vires^  together  with  hostile  legislation  in  other 
States  and  an  apparent  hostility  of  public  opin- 

*  The  People  of  the  State  of  New  York  v.  The  North 
River  Sugar  Refining  Co.,  121  N.  Y.,  582. 


Organization  and  Management 

ion,  led  the  old  Trusts  to  give  up  this  form  of 
organization  and  to  reorganize.  The  Sugar 
Trust  and  the  Whiskey  Trust  organized  as 
individual  corporations,  the  certificate  holders 
becoming  stockholders  in  a  new  corporation 
which  owned  all  of  the  plants  that  had  been 
owned  by  the  individual  corporations  before 
the  formation  of  the  Trust.  In  both  cases 
there  was  substantially  no  change  in  the  man- 
agement, the  trustees  of  the  former  Trust  be- 
coming directors  of  the  new  corporation  and 
the  officers  of  the  new  corporation  remaining 
substantially  the  same  as  the  officers  of  the 
Trust.  It  was  a  change  in  name,  a  change  in 
technical  legal  form,  but  no  change  as  regards 
the  practical  management  of  the  organization. 

The  Standard  Oil  Trust  followed  a  different 
plan.  It  so  happened  that  the  nine  trustees  of 
the  Trust  owned  a  large  majority  of  the  Trust 
certificates.  The  Trust  then  dissolved  into 
separate  corporations,  the  holders  of  Trust  cer- 
tificates being  given  shares  pro  rata  in  each  one 
of  the  twenty  corporations  into  which  the  Trust 
was  divided.  Inasmuch,  however,  as  the  for- 
mer trustees  then  owned  a  majorltv  of  the  stock 
in  each  one  of  these  twenty  different  corpora- 
8  113 


The  Trust  Problem 

tions,  they  were  enabled,  without  any  formal 
organization  among  themselves,  to  direct  the 
affairs  of  all  these  corporations  in  perfect  har- 
mony just  as  efficiently  as  they  had  done  while 
acting  as  trustees  and  holders  of  a  majority  of 
the  Trust  certificates.  Here,  again,  there  was 
a  change  in  form;  but  in  this  case,  instead  of 
the  Trust  becoming  a  single  corporation,  it  be- 
came twenty  corporations,  the  majority  of  the 
stock  in  each  being  held  in  the  same  few  hands, 
and  all  of  the  corporations  being  managed  in 
perfect  harmony. 

A  comparatively  late  change  in  this  company 
of  a  different  kind  has  been  made.  One  of  the 
separate  corporations,  the  New  Jersey  corpora- 
tion, has  increased  its  stock,  and  so  arranged 
that  it  can  take  control  of  the  business  of  all 
of  the  different  companies.  The  stocks  of  the 
separate  companies  are  therefore  now  being  ex- 
changed gradually  for  the  stock  of  the  New 
Jersey  corporation,  and  in  the  course  of  time 
it  is  expected  that  this  one  corporation  will  own 
all  of  the  stocks  of  the  twenty  different  corpo- 
rations, so  that  the  management  will  thereafter 
be  not  merely  practically  one,  but  also  techni- 
cally and  legally  one  under  the  directors  of  one 
114 


Organization  and  Management 

corporation,  they  voting  all  the  stock  of  each  of 
the  corporations.  It  is  practically  a  return  to 
the  Trust  form  in  all  but  name. 

A  voting  Trust,  somewhat  different  from  the 
kinds  of  Trusts  described  before,  is  also  fre- 
quently found.  In  this  form  the  Trust  applies 
ordinarily  only  to  one  corporation.  The  hold- 
ers of  a  majority  of  the  stock  of  this  corporation 
put  into  the  hands  of  some  few  trustees  or  pos- 
sibly of  a  trust  company  the  voting  power  of  the 
stock,  with  specific  instructions  in  certain  in- 
stances as  to  the  way  in  which  this  stock  is  to 
be  voted  and  the  affairs  of  the  corporation  car- 
ried on.  In  other  cases  the  power  is  left  to 
the  trustees  to  carry  on  the  business  of  the  cor- 
poration as  seems  to  them  wise  in  accordance 
with  a  certain  general  line  of  policy  laid  down 
beforehand.  The  individual  shareholders  may 
then  pledge  or  sell  or  dispose  of  their  stock  in 
whatever  way  seems  to  them  best,  but  the  vot- 
ing power  remains  in  the  hands  of  the  trustees. 
The  purpose  of  such  a  voting  Trust  is,  of 
course,  to  secure  continuity  of  the  policy  which, 
for  whatever  reason,  the  stockholders  prefer.  In 
some  cases  it  may  be  that  the  majority  of  the 
stockholders  of  the  original  corporation  think  it 
115 


The  Trust  Problem 

desirable  to  devote  all  the  earnings  for  a  specific 
period  to  the  improvement  of  the  property  instead 
of  to  the  payment  of  dividends.  It  might  be 
impossible  to  continue  such  a  policy  with  a 
shifting  body  of  stockholders,  many  of  whom 
might  wish  to  receive  annual  dividends.  If, 
however,  the  stock  can  be  transferred,  but  the 
voting  power  remain  in  a  few  hands,  the  policy 
can  be  carried  out  consistently  for  a  fixed  period 
of  years. 

In  the  case  of  the  Pure  Oil  Company  and 
other  competitors  of  the  Standard  Oil  Company, 
it  was  thought  desirable  to  place  the  majority 
of  the  stock  in  the  hands  of  a  few  trustees,  be- 
cause many  stockholders  felt  that  otherwise  the 
Standard  Oil  Company  might  in  time  buy 
from  individual  stockholders  a  controlling  num- 
ber of  shares,  and  thus  succeed  in  absorbing 
more  or  less  completely  one  of  its  chief  rivals. 
It  is  claimed  by  the  managers  of  the  Pure  Oil 
Company  that,  owing  to  experience  with  some 
other  companies,  they  had  reason  to  believe 
that  this  was  the  purpose  of  the  Standard  Oil 
Company,  and,  in  consequence,  the  Pure  Oil 
Company  had  its  stock  placed  in  the  hands  of 
a  voting  Trust. 

ii6 


Organization  and  Management 

It  will  be  noticed  that  in  all  of  these  cases 
the  difference  between  this  form  of  voting 
Trust  and  the  original  Trust  as  seen  in  the 
case  of  the  Sugar  Trust,  is  that  in  the  later 
cases  provision  is  made  simply  for  the  manage- 
ment in  a  specific  way  of  the  affairs  of  some 
one  corporation,  whereas  in  the  other  case  the 
intention  of  the  Trust  was  to  unite  many  dif- 
ferent corporations  under  a  single  management 
and  possibly  in  certain  cases  to  secure  a  virtual 
if  not  a  complete  monopoly  of  the  output. 

After  the  dissolution  of  the  old  Trusts,  the 
form  of  organization  into  one  great  corporation 
that  should  own  the  separate  plants,  became 
most  common.  Under  that  form,  as,  for  exam- 
ple, in  the  case  of  the  organization  of  the 
American  Tin  Plate  Company  or  of  the  Na- 
tional Steel  Company,  each  one  of  the  separate 
corporations  sold  Its  plant  outright  to  a  new  cor- 
poration, and  the  original  corporation  then  dis- 
solved. When  the  combination  was  completed, 
there  remained  in  existence  only  the  one  great 
corporation  owning  the  plants  that  had  belonged 
before  to  the  separate  corporations  or  to  indi- 
vidual partnerships  or  owners.  In  no  essential 
particular  did  the  legal  aspect  of  the  single  new 
117 


The  Trust  Problem 

corporation  differ  from  that  of  the  separate  cor- 
porations which  had  preceded  it. 

The  form  of  organization  that  seems  to  have 
become  most  common  within  the  last  year  or 
two  is  one  that  is  closely  allied  to  the  old 
Trust  form  in  its  essential  character.  In  this 
case,  when  a  combination  is  about  to  be  per- 
fected, a  new  corporation  is  formed  whose  pur- 
pose it  is  to  buy  up  all,  or  at  least  a  controlling 
share,  of  the  stock  of  all  of  the  separate  corpora- 
tions that  are  to  come  together.  The  different 
corporations  then  maintain  their  separate  legal 
existence,  but  their  stock  is  held  by  the  one 
company.  The  officers  of  the  great  corporation 
having  thus  in  their  hands  the  control  of  the 
stock  of  all  of  the  separate  corporations,  and 
voting  that  stock  as  they  see  fit,  elect,  of 
course,  from  year  to  year  the  directors  of  all  of 
the  corporations,  and  thus  by  this  absolute  con- 
trol of  the  officers,  direct  the  affairs  of  the  differ- 
ent corporations.  In  some  cases  the  "  parent 
corporation"  (so  called,  though  born  from  the 
others),  besides  owning  the  stock  of  the  indi- 
vidual corporations,  owns  also  independently 
some  properties  of  its  own ;  but  in  other  cases 
the  parent  corporation  owns  only  the  stock 
ii8 


Organization  and  Management 

of  the  separate  ones  which  have  entered  into  the 
combination.  The  profits  of  the  individual 
corporations  are  made,  of  course,  as  before; 
their  dividends  are  declared;  and  these  divi- 
dends are  the  only  source  of  profit  of  the  parent 
corporation. 

While  this  form  of  combination  probably 
doubles  the  total  capitalization  in  par  of  stocks, 
it  should  be  noted  that  there  is  no  increase 
in  capital,  and  that  there  need  be  no  stock 
watering — although  there  often  is.  Neither 
need  there  be  any  more  speculative  securities 
created.  This  fact  is  often  overlooked  by 
those  who  are  appalled  by  the  huge  capitaliza- 
tion of  industries  during  the  past  few  years. 
While  new  companies  have  formed,  old  ones 
have  died  that  they  might  live,  or  the  con- 
stituent companies  pay  all  their  dividends 
to  the  parent  company  to  enable  it  to  pay  its 
bills.  In  this  way  the  earnings  of  the  separate 
corporations  are  pooled  as  effectively  as  they 
were  in  the  old  Trust.  The  management  is 
kept  as  effectively  in  the  hands  of  the  offi- 
cers. The  only  difference  seems  to  be  a  legal 
one.  The  parent  corporation  now  owns  the 
stock  of  the  different  corporations.  In  the 
119 


The  Trust  Problem 

other  case  a  Board  of  Trustees  held  this  stock 
in  trust  without  themselves  having  any  separate 
legal  corporate  organization.  These  new  cor- 
porations are,  it  is  true,  amenable  to  the  courts 
in  a  somewhat  more  direct  way  than  were  the 
former  trustees ;  otherwise  there  seems  to  be  no 
essential  difference  between  these  two  forms  of 
combination.  In  this  later  form  of  combination 
the  constituent  companies  have  their  separate 
boards  of  directors,  their  separate  officers,  and 
carry  on  their  business  independently,  managing 
it,  however,  under  the  general  direction  of  the 
officers  of  the  parent  company.  It  follows  of 
necessity  that  the  work  of  all  the  different 
corporations  is  carried  on  harmoniously.  Some 
one  of  them  may  have  its  plants  closed  for  a 
time  in  order  to  suit  the  supply  of  product  to 
the  demand;  on  the  other  hand  it  may  even  be 
that  prices  will  be  fixed  by  the  officers  of  the 
several  companies;  but  in  case  of  need  they  can 
always  be  readily  controlled. 

It  should  be  noted  that  among  these  various 
forms  of  combinations  there  are  two  kinds,  as 
was  indicated  earlier  in  Chapter  II,  essen- 
tially different  in  nature.  The  first  is  made 
up  of  companies   that   have  been  active  com- 

I20 


Organization  and  Management 

petitors  before  the  combination  was  made,  as 
in  the  case  of  the  original  Sugar  Trust  and 
Whiskey  Trust.  In  these  cases  the  combination 
was  sought  for  the  special  purpose  of  lessening 
competition,  together  with  the  elimination  of 
the  competitive  wastes.  The  combination 
simply  took  different  competitors  out  of  the 
market  and  enabled  the  price  of  the  product 
to  be  fixed  by  the  central  organization. 

In  the  second  kind  of  combination,  the  constit- 
uent members  have  often  not  been  competitors 
in  the  same  line  of  work  before  the  combination 
was  made,  though  they  each  seek  a  share  of  the 
value  of  the  final  product.  Instead  of  being  com- 
petitors in  the  same  line  of  business,  they  have 
been  producers  of  different  products  at  different 
stages  in  the  same  industry.  For  example,  the 
Federal  Steel  Company  is  a  combination  of  sev- 
eral companies  that  were  not  competitors.  The 
Minnesota  Iron  Company  owns  iron  ore  prop- 
erty, also  the  Duluth  and  Iron  Range  Railroad 
Company,  which  connects  its  mines  with  Lake 
Superior  at  two  points.  It  owns  ore  docks  and 
also  twenty-two  steel  lake  vessels  that  can  carry 
a  large  proportion  of  its  products  each  year. 
The  Federal  Steel  Company  bought  all  its  stock. 

121 


The  Trust  Problem 

It  also  bought  all  of  the  stock  of  the  Lorain  Steel 
Company,  which  manufactures  chiefly  steel  rails 
for  street  railways,  although  some  steel  billets; 
it  bought  all  the  stock  of  the  Johnson  Com- 
pany, which  is  engaged  chiefly  in  manufacturing 
frog  switches  and  crossings  for  street  railroads, 
as  well  as  electric  motors.  Another  company, 
all  the  stock  of  which  it  purchased,  is  the  Illi- 
nois Steel  Company  with  several  plants,  which 
produce  pig  iron,  steel  rails,  steel  billets,  steel 
plates,  etc.  This  company  is  also  the  owner 
of  the  stock  of  the  Chicago,  Lake  Shore  and 
Eastern  Railway,  which  connect  its  plants  in 
the  neighborhood  of  Chicago,  and  also  gives 
these  plants  an  outlet  to  the  general  market  over 
all  of  the  railroads  in  the  country.  It  also  owns 
large  tracts  of  coal  property  on  which  it  manu- 
factures coke  used  in  its  plants.  From  this 
statement  it  will  be  seen  that  the  Federal  Steel 
Company  by  its  formation  lessened  only  to  a 
very  slight  extent,  if  at  all,  the  competition  in 
the  same  lines  which  had  existed  before.  Its 
purpose  was  different.  Through  the  combina- 
tion the  mines  are  furnished  with  a  sure  cus- 
tomer, provided  they  need  one,  for  a  large  part  at 
least  of  their  output;  while,  on  the  other  hand, 

122 


Organization  and  Management 

the  Illinois  Steel  Company,  in  its  manufacture 
of  steel  rails,  billets,  etc.,  is  assured  of  a  steady 
supply  of  its  ore  for  the  carrying  on  of  its  manu- 
facture. In  this  way  contracts  can  be  taken 
for  a  long  period  of  time  in  advance  with  per- 
fect certainty  of  their  being  carried  out  on  time 
without  any  excessive  losses  that  might  other- 
wise come  from  possible  changes  in  the  price 
of  ore.  Before  the  organization,  of  course, 
each  of  these  separate  companies  tried  to  get 
the  largest  share  possible  of  the  value  of  the 
finished  product.  Now,  while  the  contest 
may  be  the  same,  the  motive  has  been  weak- 
ened. The  profit  which  the  mine  foregoes, 
may  be  made  by  the  rolling  mill  or  the  fleet 
of  transports.  It  is,  of  course,  true  that  the 
business  of  each  one  of  these  separate  com- 
panies is  m.anaged  independently;  it  is  still 
further  true  that  at  times  the  mining  company 
can  sell  its  ore  to  better  advantage  to  outside 
manufacturers  than  to  the  other  constituent 
members  of  the  Federal  Steel  Company,  they 
in  turn  buying  their  ore  to  better  advantage 
from  some  other  mine.  But,  while  the  work 
can  be  ordinarily  and  is  ordinarily  carried  on 
independently,  and  while  at  times  each  of  the 
123 


The  Trust  Problem 

separate  constituent  companies  deals  largely 
with  outsiders,  this  perfect  union  in  manage- 
ment enables  them  to  be  secure  at  all  times  as 
regards  the  supply  of  raw  material  on  the  one 
hand,  and  a  proper  sale  of  the  raw  product  on 
the  other,  advantages  that  can  by  no  means  be 
lost  sight  of. 

Some  other  companies  without  any  formal 
organization  are  managed  in  largely  the  same 
way.  For  example,  the  American  Tin  Plate 
Company,  the  National  Steel  Company,  and 
the  American  Steel  Hoop  Company,  while  en- 
tirely independent  in  their  organization,  have 
nevertheless  to  a  considerable  extent  the  same 
men  as  large  stockholders  and  as  directors. 
While  each  one  can  thus  work  independently, 
and  while  legally  each  one  does  so  work,  there 
is  to  a  considerable  extent  the  same  knowledge 
on  the  part  of  each  of  the  business  of  the  other 
and  the  same  harmonious  working  that  is  found 
among  the  constituent  companies  of  the  Federal 
Steel  Company,  of  the  Distilling  Company  of 
America,  and  of  others  that  have  united  through 
the  holding  of  the  stock  of  the  constituent  com- 
panies by  one  parent  company. 

Whatever  the  form  of  organization,  however, 
l?4 


Organization  and  Management 

the  one  essential  requirement  is  efficiency  and 
an  opportunity  for  saving  any  of  the  waste  that 
might  come  if  the  different  corporations  or 
companies  were  working  independently.  It  is 
desirable,  of  course,  from  the  one  point  of  view 
that  this  efficiency  be  used  to  serve  the  public 
in  the  way  of  better  goods  and  lower  prices. 
On  the  other  hand,  from  the  standpoint  of  the 
combination  itself,  the  efficiency  points  simply 
to  the  cheaper  cost  of  production  and  the  more 
efficient  control  of  the  process  of  manufacture, 
whereas  the  service  to  the  public  in  the  way  of 
cheaper  prices  is  of  course  a  secondary  considera- 
tion, and  is  sometimes  even  contrary  to  the  wish 
of  the  corporation. 

The  form  of  organization  will  naturally  de- 
termine to  a  considerable  extent  the  method  of 
management  of  one  of  these  combinations. 
Ordinarily  there  is  no  difference  in  appearance 
between  the  management  of  a  large  corporation 
called  a  Trust  and  any  ordinary  corporation. 
Any  student  of  corporation  law,  upon  reading 
the  charter  and  by-laws,  can  readily  tell  from 
the  power  that  is  put  into  the  hands  of  the  di- 
rectors whether  they  are  in  a  position  to  manage 
the  corporation  in  their  own  interests  as  against 
125 


The  Trust  Problem 

those  of  the  stockholders,  or  whether  the  stock- 
holders are  given  power  of  control. 

If  one  may  judge  from  the  fluctuations  of  the 
shares  of  several  of  these  larger  corporations 
on  the  Stock  Exchange,  it  would  seem  that  the 
power  at  any  rate  is  given  to  the  directors  so  to 
manipulate  the  stock  that  they  as  individuals,  by 
buying  and  selling  at  suitable  times,  may  make 
large  individual  profits  at  the  expense  of  the 
majority  of  the  stockholders — a  most  dangerous 
power. 

In  the  first  place,  the  stockholders  in  many 
cases  are  prevented  by  the  by-laws  from  having 
access  to  the  books  of  the  corporations,  except 
under  the  most  extreme  circumstances.  The 
directors  make  no  reports  to  the  stockholders 
that  give  them  any  clear  insight  into  the  meth- 
ods of  management  of  the  business,  and  the 
public  who  may  be  intending  to  invest  in  the 
stock  have  no  means  of  judging  what  the  finan- 
cial condition  of  the  corporation  is.  When  the 
charter  and  by-laws  thus  enable  a  board  of 
directors  to  conceal  absolutely  from  the  stock- 
holders the  condition  of  the  business,  one  may 
at  least  be  justified  in  the  opinion  that  if  the 
affairs  of  the  corporation  are   not  managed  for 

126 


Organization  and  Management 

speculative  purposes  by  the  directors,  it  is  be- 
cause they  are  men  above  temptation  of  that 
kind. 

In  some  instances,  also,  the  Boards  of  Direc- 
tors are  so  classified  and  the  terms  of  their 
office  so  arranged  that  those  who  are  first  put 
into  control  as  directors  by  the  organizers  of 
the  company  may  keep  that  control  for  a  period 
of  years  without  any  possibility  of  being  ousted 
by  the  shareholders,  unless  their  methods  of 
management  are  so  palpably  fraudulent  that  the 
courts  will  order  their  removal.  Under  those 
circumstances  the  directors  and  officers  are 
in  a  position  of  strong  temptation  to  manage 
business  in  their  own  interests  with  compara- 
tively little  danger  of  being  found  out  for  a  con- 
siderable length  of  time.  Here,  again,  an 
investor  who  sees  in  the  articles  of  incorporation 
and  by-laws  provisions  which  deprive  him  and 
his  fellow  shareholders  of  all  effective  power 
over  the  directors  for  a  period  of  years,  buys 
the  stock  knowing  his  own  risk. 

It  is  not  intended,  of  course,  to  overlook  the 
fact  that  too  great  power  given  to  the  share- 
holders, or  too  close  a  knowledge  of  the  interior 
management  of  a  corporation  by  the  share- 
127 


The  Trust  Problem 

holders,  may  easily  result  in  injury  to  the  inter- 
ests of  the  great  majority  of  them.  It  is  not 
desirable  for  a  corporation  to  have  its  competi- 
tors know  the  details  of  its  management.  If 
any  shareholder  were  at  liberty  to  examine  the 
books  of  the  corporation  at  any  time,  or  if  the 
directors  were  compelled  to  give  to  the  share- 
holders the  privilege  of  examining  closely  the 
details  of  their  management,  it  would  be  a  com- 
paratively easy  matter  for  the  manager  of  a  rival 
company  to  buy  a  few  shares  of  stock  in  order 
that  the  lawful  and  proper  secrets  of  the  corpo- 
ration might  become  his.  It  would  also  be 
possible  for  an  individual  shareholder  practically 
to  levy  a  blackmail  upon  the  corporation,  which  it 
will  promptly,  however  unwillingly,  pay,  in  order 
to  prevent  proper  secrets  of  management  from 
becoming  public  property.  While  one  may 
readily  grant  that  these  dangers  to  the  real  wel- 
fare of  a  corporation  exist  if  too  great  power  is 
given  to  the  shareholder,  one  must  not  overlook 
the  fact  that  the  other  extreme  is  no  less  dan- 
gerous. 

It  would  be  very  desirable  if  more  careful 
study  were  made  of  the  forms  of  organization, 
as  shown  in  the  charter  and  by-laws  of  corpo- 

Z28 


Organization  and  Management 

rations.  Intending  investors  would  in  many 
cases  by  such  study  be  prevented  from  putting 
their  money  into  corporations  organized  evi- 
dently for  purposes  of  speculation,  or  for  the 
special  advantage  of  the  directors  and  officers 
against  the  interests  of  the  shareholders. 

So,  too,  if  more  attention  were  paid  to  this 
feature  of  corporation  organization  and  man- 
agement, there  would  soon  be  some  decided  im- 
provements in  our  corporation  laws. 

Of  course  these  statements  regarding  Trusts 
apply  to  all  large  corporations,  but  the  oppor- 
tunities for  speculation  against  the  interests  of 
the  shareholders  and  of  the  public  are  so  much 
greater  in  the  case  of  the  very  large  corpora- 
tions, which  have  some  monopolistic  power,  that 
the  offence  becomes  almost  of  a  different  kind. 
9 


129 


CHAPTER   VIII 

PRICES 

If  in  any  industrial  combination  the  econo- 
mies which  are  made  by  saving  the  wastes  of 
competition  can  be  secured,  it  is  evident  that, 
if  the  managers  of  the  combination  wish,  it  is 
possible,  without  the  profits  being  lessened,  to 
put  prices  of  the  finished  product  below  for- 
mer competitive  rates;  or,  on  the  other  hand, 
to  put  prices  for  raw  material  above  those 
common  before.  Or  again,  if,  as  a  result  of 
the  combination,  there  comes  an  increased  out- 
put from  the  demands  of  the  export  trade  or 
from  an  added  demand  that  might  come  from 
lowered  cost,  the  price  paid  for  raw  material 
mio-ht   through   either   of    these   influences    be 

G  to 

raised  somewhat.  What  may  be  done  if  a  cer- 
tain degree  of  monopoly  can  be  held,  has  already 
been  discussed  at  considerable  length  in  the 
chapter  on  Monopoly.  What  may  be  done 
is,  however,  but  one  consideration.  It  is,  per- 
haps, of  more  importance  at  the  present  date  to 
130 


Prices 

show  what  has  been  done,  in  order  that  we  may 
be  better  able  to  judge  the  present  industrial 
situation,  to  note  possible  changes  in  the  fu- 
ture, and  to  see  what  measures  of  legislation, 
if  any,  may  be  needed  in  order  to  adapt  these 
combinations  to  our  present  industrial  condi- 
tions. It  will,  perhaps,  be  best  to  give  as 
careful  a  statistical  representation  as  possible  of 
the  prices  over  a  series  of  years  in  several  lines 
of  industry  where  the  statistics  can  be  gathered, 
and  thus  to  test  the  effects  of  the  industrial 
combinations  upon  prices.  While  the  effects 
can  thus  be  shown  here  upon  only  a  few  articles, 
it  is  believed  that  they  are  sufficiently  typical,  so 
that  they  represent  fairly  well  the  actual  effects 
of  combination  up  to  date.  Similar  studies  of 
many  other  articles  show,  in  the  main,  the  same 
general  results.  From  a  theoretical  discussion  we 
can  judge,  perhaps,  somewhat  more  accurately 
what  the  effect  is  likely  to  be  in  the  future.'^ 

The  actual  effects  of  the  industrial  combina- 
tions upon  prices  form  certainly  one  of  the  best 

*  The  remainder  of  this  chapter  has  been  reprinted,  with 
some  changes  and  additions,  from  the  chapter  written  by 
the  author  for  the  United  States  Industrial  Commission, 
and  printed  in  their  Preliminary  Report  on  Trusts,  Vol.  I., 
Part  I.,  pp.  39-57. 

131 


The  Trust  Problem 

tests  of  their  usefulness  or  disadvantage  to  so- 
ciety. The  popular  impression  seems  to  be  that 
these  combinations  very  greatly  increase  prices  to 
the  consumers.  On  the  other  hand,  the  Trust 
managers  and  their  advocates  are  in  the  habit 
of  claiming  that,  owing  to  economies  of  man- 
agement, the  Trusts  lower  prices  to  consumers, 
while  at  the  same  time  they  increase  the  wages 
of  their  employes. 

It  is,  of  course,  comparatively  easy  by  the 
selection  of  statistics  at  certain  chosen  periods 
to  show  either  of  these  results.  It  has.  In  con- 
sequence, seemed  wisest  to  secure  as  far  as  pos- 
sible average  monthly  prices  of  the  leading  raw 
materials  and  finished  products  of  several  of  the 
larger  combinations  for  a  series  of  years,  and  to 
plat  these  on  charts  In  such  a  way  that  the  re- 
lations at  all  times  between  the  two  can  be  most 
readily  seen.  Wherever  It  has  been  practica- 
ble, European  prices  have  been  compared  with 
American,  In  order  that  the  Influence  of  the 
Trust  itself  might  more  clearly  be  brought  out. 

The  differential  or  "margin"  between  the 
price  of  the  raw  materials  and  that  of  the  fin- 
ished product  should  show,  other  things  equal, 
the  cost  of  manufacture  plus  the  profit.  Un- 
132 


PRICES    or   STTGAK 


~ 


Prices 

less  one  is  somewhat  guarded,  however,  one  is 
likely  to  reach  false  conclusions,  if  this  assump- 
tion is  made  without  qualification.  In  nearly 
all  processes  of  manufacture  there  is  a  consider- 
able element  of  waste  raw  material.  As  the 
price  of  the  raw  material  increases,  the  value 
of  this  waste  is  also  correspondingly  increased. 
In  consequence,  in  order  that  the  profits  may 
be  the  same,  the  margin  between  the  price  of 
the  raw  material  and  that  of  the  finished  pro- 
duct should  generally  increase  slightly  with  the 
increase  in  price  of  the  raw  material.  Again, 
when  the  raw  material  has  to  be  held  in  large 
quantities,  so  that  it  involves  the  investment  of 
considerable  capital,  it  can  be  readily  seen  that 
the  interest  charge  for  carrying  this  raw  material 
is  not  a  little  increased  as  the  price  of  the  raw 
material  rises.  This,  of  course,  is  a  factor  of 
less  importance  than  the  other,  but  nevertheless 
is  worthy  of  consideration. 

Sugar  * 

The   lines   on   the   chart   represent   standard 
raw   and   refined    sugars   in  the   United  States, 

*  The  prices  from  which  the  chart  has  been  made  were 
taken  from  Willett  and  Gray's    Statistical    Sugar   Trade 

133 


The  Trust  Problem 

England,  and  Germany.  For  America  raw 
sugar  is  represented  by  96°  centrifugal,  and  re- 
fined by  granulated.  The  English  raw  sugar, 
Java  Afloat,  corresponds  closely  with  the  Ameri- 
can 96°  centrifugal;  but  the  English  refined 
sugar,  Tate's  Cubes,  is  a  special  grade,  which 
normally  brings  somewhat  more  than  the  regu- 
lar price  of  granulated  sugar — at  times,  prob- 
ably, nearly  half  a  cent  more.  The  conse- 
quence is  that  we  should  expect  the  margin 
between  the  raw  and  refined  in  England  to  be 
somewhat  greater  than  the  American  margin 
between  96°  centrifugal  and  granulated. 

The  German  sugars  shown,  both  raw  and 
refined,  are  of  somewhat  poorer  quality  than 
the  American  sugars.  The  margin  between 
them,  other  things  equal,  would  be,  perhaps, 
not  quite  so  great  as  that  between  the  American 
raw  and  refined.  The  fact  that  it  is  so  much 
less  is  due  in   part,  doubtless,  to  the  German 

Journal.  In  the  Journal,  English  and  German  prices  were 
given  in  shillings  and  pence  per  hundredweight  of  112 
pounds.  They  have  been  reduced  to  cents  per  pound  in 
order  that  comparisons  might  be  more  readily  made,  and  the 
chart  more  easily  platted.  The  convenient  rule  for  reduc- 
tion given  in  the  Journal  of  January  4,  1900,  from  which 
the  prices  of  foreign  sugars  are  taken,  has  been  followed. 

134 


Prices 

bounty  on  the  exportation  of  refined  sugar.  It 
is  also  probable,  if  one  may  accept  the  opinion 
of  sugar  experts,  that  the  cost  of  refining  in  Ger- 
many is  somewhat  less  than  here,  and  that  under 
normal  conditions  the  Germans  are  satisfied 
with  a  somewhat  smaller  profit. 

The  effect  of  the  sugar  combination  upon 
prices  of  sugar  can  perhaps  be  most  readily  seen 
from  the  course  of  line  C,  which  represents  the 
perpendicular  distance  between  line  B,  repre- 
senting 96°  centrifugal  sugar,  and  line  A,  rep- 
resenting granulated  sugar,  both  of  them  whole- 
sale prices  in  the  New  York  markets.  The 
distance,  then,  of  C  from  the  bottom  of  the 
chart  represents  the  cost  of  refining,  including 
selling  cost,  plus  the  profits.  The  line  F  in 
the  same  way  represents  the  English  cost  of  re- 
fining, plus  the  profits,  it  being  remembered, 
however,  that  the  English  refined  sugar  is  of 
a  somewhat  higher  grade  than  the  American 
granulated.  The  line  F,  it  will  be  noted,  ran 
somewhat  above  one  cent  a  pound,  perhaps  on 
an  average  between  a  cent  and  a  quarter  and  a 
cent  and  a  half,  from  1880  to  1887,  the  time 
of  the  formation  of  the  Sugar  Trust  in  the 
United  States.  There  seemed  to  be  no  lower- 
135 


The  Trust  Problem 

ing  in  this  English  margin  during  the  years  1883 
to  1887.  From  the  beginning  of  1888  on  to 
1894  this  line  seems  to  have  lowered  slightly, 
but,  on  the  whole,  to  have  remained  about  the 
same.  From  1894  to  date  there  seems  to  have 
been  again  another  lowering,  the  line  represent- 
ing, on  the  whole,  since  that  date  something 
less  than  one  cent  a  pound. 

On  the  other  hand,  line  C  shows  that  during 
the  years  from  1883  to  1887  there  had  been 
a  very  decided  lowering  in  this  margin  in  the 
United  States,  owing,  of  course,  to  vigorous 
competition  among  the  independent  refiners. 
From  the  testimony  given  by  witnesses  before 
the  Industrial  Commission,  this  competition  was 
so  very  destructive  in  its  nature  that  a  large  per- 
centage of  the  American  refiners,  as  has  been 
said — eighteen  out  of  about  forty — had  failed. 

In  1887  ^^^  Trust  was  formed.  The  mar- 
gin was  immediately  raised  more  than  half  a 
cent  a  pound,  at  times  even  fully  one  cent  a 
pound.  During  the  two  years  1888  and  1889, 
when  one  takes  into  account  the  lessened  cost 
of  manufacture  that  came  from  the  organization 
of  the  combination,  one  may  fairly  judge  that 
the  Trust  made  enormous  profits. 
136 


Prices 

The  margin  fell  again  in  the  latter  part  of 
1889.  This  was  owing  to  the  fact  that  large 
competing  refineries,  especially  those  built  by 
Claus  Spreckels  at  Philadelphia,  had  entered  the 
field.  For  rather  more  than  two  years,  while 
this  vigorous  competition  continued,  the  margin 
fell  back  to  a  point  substantially  as  low  as  had 
existed  before  the  formation  of  the  Trust.  In 
Februar)',  1892,  the  Trust  bought  up  the  com- 
peting refineries,  and  the  margin  was  at  once  put 
back  to  the  non-competitive  height.  From  the 
years  1892  to  1898  this  margin  remained,  rela- 
tively speaking,  high,  with,  as  will  be  noted,  a 
slight  gradual  lessening,  owing  presumably  to 
the  improvements  in  refining  and  the  consequent 
lessened  cost,  with  possibly  a  growing  realiza- 
tion of  the  danger  of  inducing  new  capital  to 
enter  the  business.  Throughout  all  these  years, 
with  the  exception  of  the  time  when  there  existed 
vigorous  competition  between  the  Trust  and  the 
Spreckels  refineries,  it  will  be  noted  that,  on  the 
whole,  there  was  a  close  correspondence  between 
the  English  margin  and  the  American,  the 
changes  in  the  duty  upon  sugars  having  appar- 
ently only  a  slight  temporary  effect  upon  this 
margin,  although  the  removal  of  the  duty  on  raw 
137 


The  Trust  Problem 

sugar  by  the  McKinley  tariff  affected  very  de- 
cidedly the  price  of  sugar  to  consumers. 

In  the  latter  part  of  1898  vigorous  competi- 
tion against  the  American  Sugar  Refining  Com- 
pany (the  reorganized  Trust)  began  on  the  part 
of  Arbuckle  Brothers,  Claus  Doscher,  and  others. 
Prices  were  immediately  cut  so  that  the  margin 
between  raw  and  refined  sugar  has  fallen  again 
very  decidedly. ,  Instead  of  standing  from  75 
cents  to  ;^i  per  hundred  pounds,  as  had  been 
the  case  most  of  the  time  during  the  three  or 
four  years  preceding,  it  has  remained  during  the 
last  year  at  but  little  above  50  cents,  and  at 
times  has  been  even  below  that,  with  at  present, 
in  June,  1900,  a  considerable  increase. 

This  study  of  the  chart,  then,  especially  when 
we  compare  the  American  with  the  English  and 
German  margins,  shows  clearly  this :  The  sugar 
combination  has,  beyond  question,  had  the  power 
of  determining  for  itself,  within  considerable 
limits,  what  the  price  of  sugar  should  be,  low  or 
high,  with  or  without  competitors,  although 
when  there  has  been  competition  it  has  chosen 
to  cut  prices  to  drive  out  its  rivals  rather  than 
to  run  the  risk  of  letting  them  gradually  take 
its  market  on  account  of  its  high  prices.  Dur- 
138 


Prices 

ing  about  nine  of  the  twelve  years  which  have 
passed  since  the  organization  of  the  Trust, 
the  margin  between  raw  and  refined  sugars  has 
been  considerably  higher  than  it  was  for  three 
years  before  the  Trust  was  organized,  and  than 
it  has  been  during  the  three  years  when  there 
has  been  vigorous  competition. 

The  combination  forced  the  fighting  so  se- 
verely against  Mr.  Spreckels  as  a  competitor 
that  he  was  apparently  glad  to  sell  out  after  about 
two  years.  The  present  contest  between  the 
Trust  and  its  opponents  has  continued  for  more 
than  a  year  and  a  half,  and  at  present  shows  no 
sign  of  ending  but  this,  that,  with  perhaps  the 
exception  of  Arbuckle  Brothers,  the  opposition 
refineries  have  been  run  at  far  below  their  full 
capacity,  have  stopped  entirely  at  times,  and 
presumably  have  been  making  practically  no 
profits,  and  that  now  they  are  making  a  com- 
bination among  themselves. 

The  chart  seems  to  show  also  that  the  Trust 
has  had  very  little,  if  any,  effect  toward  steady- 
ing prices.  The  fluctuations,  both  in  the  price 
of  sugar  and  in  the  margin,  seem  to  be  fully  as 
great  since  the  combination  was  formed  as  be- 
fore, and  to  be  rather  greater,  on  the  whole, 
139 


The  Trust  Problem 

than  the  fluctuations  in  the  English  or  the  Ger- 
man market. 

The  assertion  often  made  that  the  price  of 
sugar  would  have  been  higher  if  it  had  not  been 
for  the  formation  of  the  Trust  seems  to  have  a 
partial,  but  only  a  partial,  justification  in  the 
chart.  The  chart  does  make  it  perfectly  clear 
that  during  periods  of  the  most  vigorous  competi- 
tion the  sugar  refiners  were  doing  their  work  on  a 
very  low  margin.  The  large  number  of  refiner- 
ies that  went  into  bankruptcy  before  the  forma- 
tion of  the  Trust  seems  to  show  clearly  that  the 
margin  was  ruinously  low.  While  it  is  prob- 
ably for  the  economic  advantage  of  the  country 
that  the  weakest  competitors  be  forced  out  of 
business  from  time  to  time,  it  can  hardly  be  con- 
sidered for  the  benefit  of  the  countr}'  that  com- 
petitors of  substantially  equal  strength  carry 
■competition  so  far  that  all  are  running  at  a  loss, 
and  that  a  large  percentage  of  them  go  into 
bankruptcy.  When  competition  is  so  fierce, 
the  inevitable  result  of  its  continuance  would  be 
that,  as  Mr.  Post,  a  rival  of  the  Trust,  says,  the 
few  who  survive  would  be  able,  owing  to  the 
lessened  supplv,  to  put  prices  at  considerably 
.above  usual  competitive  rates,  and  would  be  en- 
140 


Prices 

couraged  to  do  so,  because  they  could  not  well 
supply  the  demand.  Unrestricted  competition, 
then,  among  powerful  rivals  in  an  industry  of  this 
character  would  thus  lead,  it  would  seem,  to  very 
great  fluctuations  in  prices  from  those  abnormallv, 
not  to  say  ruinously,  low  to  those  abnormally  high. 
One  ought  not  to  fail  to  note  that  in  indus- 
tries of  this  class,  under  present  methods  of  do- 
ing business,  one  can  scarcely  with  propriety 
speak  of  a  competitive  rate  that  is  in  any  sense 
normally  uniform.  The  "normal  price"  of 
economists  has  been  based  upon  cost  of  produc- 
tion under  a  system  of  competition  among  small 
capitalists.  From  what  has  just  been  shown, 
it  appears  that  in  an  industry  like  that  of  sugar- 
refining  competition  will  first  force  all  to  sell  at 
a  rate  that  is  below  cost  for  many,  perhaps  all, 
refiners,  until  many  fail.  Then  the  short  sup- 
ply for  a  period  of  years,  if  no  combination  is 
made,  will  enable  all  those  surviving  to  reap  large 
profits  from  high  prices,  till  new  capital,  after 
months  or  years,  is  tempted  into  the  business. 
Then  prices  fall  again  below  cost.  It  would 
seem  that  in  such  an  industry  the  real  rate  under 
competition,  if  the  almost  inevitable  combination 
were  not  made,  would  be  first  below  cost,  then 
141 


The  Trust  Problem 

far  above  it,  then  below  again,  and  thus  con- 
tinuously in  cycles.  There  is  no  normal  level 
of  competitive  price  based  on  cost  of  production. 

While  there  does  seem,  from  this  thought,  to 
be  this  partial  justification  for  the  claim  that  the 
Trust  may  have  lowered  the  price  of  sugar  on  the 
whole  below  what  it  would  have  been  for  a  time 
had  the  combination  never  been  formed,  the  rela- 
tive steadiness  of  the  English  margin  at  a  point 
which,  in  the  main,  seems  lov/er  than  ours,  con- 
sidering the  higher  grade  of  English  refined 
sugar,  as  well  as  the  exceedingly  high  margin 
found  frequently  in  the  United  States  since  the 
organization  of  the  Trust  and  the  large  profits 
of  the  American  Sugar  Refining  Company, 
would  seem  to  show  that  the  price  of  sugar  in 
this  country  has  probably,  on  the  whole,  been 
rather  higher  than  it  would  have  been  had  most 
refiners  been  willing  to  take  but  a  small  profit 
above  the  cost  of  refining,  and  certainly  con- 
siderably higher  than  it  would  have  been  under 
conditions  of  competition  such  as  have  existed 
during  the  last  two  years. 

A  still  further  fact  v/hich  leads  to  the  same 
conclusion  is  that  Mr.  Havemeyer,  the  president 
of  the  American  Sugar  Refining  Company,  seems 
142 


Prices 

unwilling  to  concede  that  the  cost  of  refining  is 
as  low  as  his  competitors  assert.  Mr.  Jarvie,  of 
Arbuckle  Bros.,  says  that  with  a  margin  of  from 
50  to  60  cents  sugar  can  be  refined  without  loss. 
Mr.  Doscher  agrees,  saying  that  it  can  be  done 
without  loss  when  the  margin  is  50.  Mr.  Post 
places  the  margin  somewhat  higher,  but  concedes 
that  a  large  establishment  like  the  Trust  would 
have  an  advantage  of  from  3  to  5  cents  a  hun- 
dred pounds  in  refining.  Mr.  Havemeyer,  on  the 
other  hand,  puts  50  cents  a  hundred  as  the  bare 
cost  of  refining,  and  declares  that  24  cents  more 
at  least  must  be  added  on  account  of  the  waste 
in  raising  sugar  from  96°  to  100°,  the  polari- 
scope  test  of  the  refined,  thus  making  the  mar- 
gin necessary  for  profit  some  75  cents  a  hundred, 
instead  of  from  50  to  60.  Apparently  he  thinks 
it  wise  to  reckon  in  some  interest  on  investment 
with  the  cost,  which  the  other  witnesses  seem 
not  to  have  done.  He  admits  that  "no  great 
damage  is  done"  when  the  margin  is  at  75 
cents.  There  is  a  profit,  if  all  is  in  good  work- 
ing order. 

Another  point  which  is  to  be  considered,  al- 
though it  is  one  which  is  scarcely  noticeable,  or 
noticeable  only  in  certain  special  cases  on  the 
143 


The  Trust  Problem 

chart,  is  this,  that  in  order  to  secure  the  same 
profits  the  margin  between  raw  and  refined  su- 
gars should  be  slightly  greater  when  the  price  of 
raw  sugar  is  high,  inasmuch  as  the  loss  of  weight 
is  a  more  expensive  waste.  If,  for  example, 
with  raw  sugar  at  $3  a  hundred  there  were  a  7 
per  cent,  waste,  let  us  say,  in  refining,  this  loss 
would  amount  to  21  cents  a  hundred;  while  if, 
with  the  same  7  per  cent,  waste,  the  price  of 
raw  sugar  were  ^4  a  hundred,  the  waste  would 
amount  to  28  cents.  We  see,  therefore,  that 
in  order  to  make  the  same  profit  the  margin 
should  be  7  cents  a  hundred  more  in  the  second 
case  than  in  the  first.  The  witnesses  speak  of 
unusually  vigorous  competition  and  a  consequent 
low  margin  each  year  from  December  to  March, 
while  the  Louisiana  crop  is  being  refined  and 
marketed,  but  this  does  not  appear  with  any 
regularity. 

On  the  whole,  the  chart  seems  to  make  it 
perfectly  evident  that  the  sugar  combination  has 
raised  the  price  of  refined  sugar  beyond  the  rates 
in  vogue  during  the  period  of  active  competition 
before  the  formation  of  the  Sugar  Trust  and  the 
two  competitive  periods  during  its  existence. 
We  can  perhaps  hardly  judge  so  accurately  as  to 
144 


Prices 

what  might  have  happened  had  the  combination 
not  been  formed,  but  the  price  has  probably  been 
raised  beyond  what  it  would  have  been.  There 
is  doubtless  some  force  in  the  argument  of  Mr. 
Post  to  the  contrary,  and  we  must  concede  that 
in  industries  of  this  type  we  can  hardly  speak 
with  accuracy  of  a  "normal  competitive  rate," 
based  on  cost  of  production  or  on  the  prevailing 
rate  of  interest,  which  we  can  use  as  a  standard 
of  measurement. 

The  chart  does  not  give  us  any  information 
regarding  the  eiFect  of  the  sugar  combination 
upon  the  price  of  raw  sugar.  That  seems  to 
follow  in  the  main,  as  would  be  expected,  the 
fluctuations  in  the  prices  of  raw  sugar  in  both 
England  and  Germany,  with  the  decided  differ- 
ences that  we  should  expect  at  times  from  the 
effect  of  our  tariff.  It  does,  however,  show 
some  remarkable  fluctuations.  The  advance  in 
prices  in  1888  and  1889  was  due  principally  to 
a  shortage  in  European  beet  crops  and  in  the 
Cuban  cane  crop,  which  led  to  wild  speculation 
in  Europe.  It  is  probable,  as  several  of  the 
witnesses  testified,  that,  owing  to  its  peculiar 
strength  as  a  buyer  of  raw  sugar,  the  Trust  is 
able  to  depress  the  price  slightly,  perhaps  one- 
10  145 


The  Trust  Problem 

sixteenth  of  a  cent,  but  this  is  not  enough  to  be 
clearly  shown  on  the  chart.  It  is  probable,  too, 
and  this,  in  fact,  seems  to  appear,  that  when- 
ever there  comes  a  decided  drop  in  the  price  of 
raw  sugar  the  Trust  has  been  able  to  delay 
slightly,  though  only  for  a  brief  time,  the  cor- 
responding drop  in  the  price  of  refined  ;  while, 
on  the  other  hand,  increase  in  the  price  of  raw 
is  attended  almost  immediately  by  an  increase  in 
the  price  of  refined,  the  Trust  thus  being  able 
to  hold  itself  for  its  own  advantage,  to  a  slight 
degree,  independent  of  market  conditions. 

Whiskey  * 

A  study  of  the  line  showing  the  difference  be- 
tween the  price  of  the  raw  material,  corn,  per 

*  The  figures  upon  which  this  chart  is  based  are  to  be 
found  on  pp.  815-817  of  the  Report  of  the  United  States 
Industrial  Commission,  Vol.  I.,  Part  II.  The  prices  of 
spirits  were  derived  from  the  reports  of  the  Peoria  Board 
of  Trade,  and  are  Trust  prices  at  that  point.  The  price 
of  com,  derived  from  the  same  source,  is  No.  2  corn  at 
Chicago,  which  is  at  present  used  by  the  Distilling  Com- 
pany of  America  as  the  basis  in  fixing  its  price  for  spirits. 

For  the  last  few  months  the  prices  of  spirits  have  been 
furnished  by  the  Distilling  Company  of  America,  and  the 
price  of  corn  by  the  Secretary  of  the  Chicago  Board  of 
Trade. 

146 


Eisr 


r  gallon,  less  the  tax  and  rebates,  by  the 


PEICES   or   SPIBITS    AliJD   COEN 


Prices 

bushel,  and  the  price,  less  the  revenue  tax,  of 
the  amount  of  the  Unished  product,  spirits,  de- 
rived from  one  bushel  of  corn,  shows  nothing  else 
so  clearly  as  the  very  great  fluctuations  in  this 
margin.  The  price  of  corn,  of  course,  owing  to 
variations  of  crops  and  to  various  factors  which 
determine  demand,  fluctuates  greatly  from  sea- 
son to  season.  At  present — as  was  the  case  at 
one  time  earlier,  while  the  Distilling  and  Cattle 
Feeding  Company  was  in  the  hands  of  a  receiver. 
General  AlcNulta — the  price  of  spirits  is  based 
directly  upon  that  of  corn,  so  that  the  fluctua- 
tions correspond  in  the  main  ;  but  for  most  of 
the  period  represented  on  the  chart  this  is  not 
true. 

During  the  years  1881  to  1887  various  pools 
were  formed  among  distillers,  most  of  which 
lasted  less  than  a  year.  The  chart  shows  clearly 
that  during  the  existence  of  each  pool  the  prices 
of  alcohol  were  kept  up  and  the  profits  were 
correspondingly  large.  When,  however,  the  pool 
suspended,  profits  fell  to  s.  minimum,  the  mar- 
gins doubtless  being  at  times  below  the  cost  of 
distilling.  At  the  formation  of  the  Trust  in 
1887  prices  were  cut  for  a  time  in  order  to  force 
competitors  into  the  organization,  but  within  a 
147 


The  Trust  Problem 

few  months  prices  were  raised  and  profits  be- 
came very  large.  These  profits  stimulating 
competition,  however,  it  became  necessary  again 
at  the  beginning  of  1889  to  cut  prices  very  de- 
cidedly in  order  to  force  rivals  into  the  combina- 
tion. For  some  two  or  three  years  after  this 
prices  and  profits  were  kept,  on  the  whole,  fairly 
high,  but  in  1892  and  1893  a  Period  of  specula- 
tion led  to  very  startling  sudden  changes  in  prices 
and  corresponding  changes  in  profits  so  far  as 
sales  were  actually  made.  It  was,  of  course, 
true  that  at  many  times  the  sales  were  very 
small. 

While  the  chart  attempts  to  show  the  prices 
without  the  rebates  which  were  paid  to  whole- 
salers during  the  years  1890  to  1895,  as  well 
as  the  quoted  market  prices,  one  cannot  be  en- 
tirely sure  of  the  accuracy  of  the  chart  in  this 
regard,  inasmuch  as  it  has  been  impossible  to 
secure  with  absolute  certainty  the  dates  of  the 
various  rebate  changes.  The  chart  is,  however, 
not  far  out  of  the  way,  if  at  all. 

Since  the   formation  of  the  American  Spirits 

Manufacturing    Company    in    1895,  while  the 

business  has  been  somewhat  more  stable  than 

during  the  last  years  of  the  Distilling  and  Cattle 

148 


Prices 

Feeding  Company,  at  no  time  until  very  lately 
has  the  combination  had  complete  enough  con- 
trol of  the  market  to  be  sure  of  steady  prices 
and  corresponding  profits.  It  will  be  noticed, 
however,  that  for  the  last  year  and  a  half  con- 
ditions have,  on  the  whole,  been  much  more 
favorable  for  the  combination  than  before,  it 
having  more  nearly  secured  the  control  of  the 
market. 

The  chart  as  a  whole  would  seem  to  show 
that  the  whiskey  combinations  have  been  able  to 
hold  prices  and  profits  high  only  for  short  periods, 
inasmuch  as  they  have  almost  invariably  at- 
tempted to  overreach  and  secure  too  high 
profits.  They  may  hold  prices  stable  for  a  few 
months,  but  when  the  changes  do  come  they 
are  much  more  radical  and  much  more  disturb- 
ing to  the  trade  than  would  be  the  changes — 
relatively  speaking  slight — which  would  come 
under  the  regime  of  free  competition. 

According  to  the  testimony  of  the  President 
of  the  Distilling  Company  of  America  and  one 
of  its  directors,  the  combination  has  finally 
adopted  the  policy  of  comparativelv  low  profits, 
but  invariably  secure  ones.  It  remains  to  be  seen 
whether  for  the  next  two  or  three  years  it  will 
149 


The  Trust  Problem 

be  able  to  carry  out  this  policy,  which,  from  the 
point  of  view  of  the  combination,  if  it  is  man- 
aged on  business  principles  and  not  for  the  pur- 
pose of  speculation,  is  a  wise  one. 

Petroleum  * 

In  considering  the  chart  showing  the  prices  of 
crude  and  refined  petroleum,  attention  should  be 
called  to  the  fact  that  figures  for  crude  oil  are 
given  in  bulk  per  gallon,  the  package  not  being 
included  in  the  price;  whereas  those  for  refined 

■*  The  prices  for  crude  and  refined  oil  for  export  have 
been  taken  from  the  Derrick's  Handbook  on  Petroleum, 
with  the  exception  of  those  for  the  last  few  months,  which 
have  been  furnished  by  the  Standard  Oil  Company.  The 
prices  are  in  cents  per  gallon,  including-  the  cost  of 
the  barrel  in  the  case  of  refined  oils,  excluding  it  in  the 
case  of  crude  oil.  The  prices  of  standard  white  illumi- 
nating oils  at  New  York,  Chicago,  and  Cincinnati  have 
been  furnished  by  the  Standard  Oil  Company.  Prices 
were  given  in  bulk,  and  the  amount  of  2\  cents  per 
gallon  was  added  for  the  cost  of  the  barrel.  This  cost 
of  the  barrel  would  of  course  vary  slightly ;  but  the 
rule  of  2\  cents  per  gallon  is  one  that  is  laid  down  in 
the  Handbook  of  Petroleum,  and  is  probably  a  fair  general 
average.  The  prices  of  export  oils  at  Bremen  were  taken 
from  the  Handbook  for  the  earlier  period,  and  for  the  last 
few  months  have  been  furnished  by  the  Standard  Oil  Com- 
pany. Figures  are  found  in  detail  with  margin  reckoned 
in  Report  of  Industrial  Commission,  Vol.  I.,  p.  48. 
150 


D  OIL 


illuminating  oils  iii  barrels  at  New  York. 

"  "  "  ''  Chicago. 

"  "  "  "  Cincinnati. 

"  "  "  "  Brennen. 


PRICES   or  CKUDE   AOT)  EIimTED  OIL 


^,,..|,..^,.,j,,.^,..j^j,^^,,..,...,,„..|,.,,,,. 


r|r!d:rfcfcl-i-'-t 


^Hta>. 


i\i\d 


A  =  P" 

B    =Pn 

C  =  Dif 


Prices 

oil  are  given  per  gallon,  including  the  cost  of 
the  barrel.  This  is  in  accordance  with  the 
usual  system  of  quoting  these  prices. 

It  will  be  observed  that  the  price  of  export  oil  at 
Bremen,  H,  is  regularlv  above  the  price,  not 
merely  of  that  same  quality  of  oil  in  this  countr}^, 
but  even  of  the  higher  grade  standard  white 
illuminating  oil.  It  frequently  happens,  how- 
ever, that  the  high  grade  illuminating  oil  is 
lower  in  price  in  New  York  than  the  poorer 
grade  oil  for  export.  For  brief  times,  in  1893-4, 
the  New  York  price  for  illuminating  oil  stood 
nearly  as  high  as  the  Bremen  price.  The  in- 
dependents claim  that  the  very  low  price  in  Ger- 
many during  those  years  resulted  from  an  at- 
tempt to  prevent  their  getting  a  foothold  in  the 
German  market. 

It  will  be  noted  that  the  prices  of  oils  in  New 
York,  Chicago,  and  Cincinnati  are  charted  on 
a  scale  twice  as  great  as  that  of  the  main 
chart.  This  has  been  done  in  order  to  show  the 
difference  in  prices  between  the  three  different 
markets  under  consideration.  On  the  whole, 
the  price  of  oil  in  New  York  stands  somewhat 
above  that  in  either  of  the  other  two  cities,  Nev/ 
York  being  somewhat  further  removed  from  the 
151 


The  Trust  Problem 

oil  fields  ;  while  the  prices  at  Cincinnati  are 
lowest.  Although  there  is  a  general  correspon- 
dence between  the  figures  in  these  different 
markets,  there  are,  nevertheless,  special  fluctua- 
tions in  each  market,  which  seem  to  be  largely 
independent  of  fluctuations  in  the  others. 

The  rapid  and  decisive  fall  in  the  price  of  re- 
fined oil  in  New  York  in  1896,  it  is  claimed, 
was  due  to  the  competition  of  the  Pure  Oil  Com- 
pany. In  March  it  put  some  wagons  in  New  York 
selling  oil.  Prices  dropped  very  rapidly  until, 
as  Mr.  Lee,  perhaps  the  leading  opponent  of  the 
Standard  Oil  Company,  says,  they  were  below 
cost.  Mr.  Archbold  of  the  Standard  Oil  Com- 
pany makes  a  somewhat  different  statement  of 
the  figures,  and  points  to  the  fact  that  the  price 
of  the  crude  oil  was  rapidly  falling.  The  chart 
shows  also  that  prices  in  both  Chicago  and  Cin- 
cinnati fell  in  like  proportion,  if  not  even  more 
rapidly,  at  the  same  time.  The  Pure  Oil  Com- 
pany began  exporting  oil  to  Germany  in  October, 
1896,  with  apparently  somewhat  better  facilities 
than  the  independents  had  had  before,  which 
may  possibly  account  in  part  for  the  rather  rapid 
fall  of  oil  in  Germany  at  about  that  time, 
although  crude  oil  was  also  falling. 
152 


rTices 

If  we  take  the  chart  as  a  whole,  and  note  the 
margin  between  the  price  of  crude  and  refined 
petroleum  represented  by  the  line  C,  we  shall  see 
that  this  margin  lowered  very  much  more  rapidly 
during  the  early  years  of  the  industry  than  of  late. 
This,  of  course,  is  to  be  expected,  as  methods 
of  production  are  much  more  rapidly  improved 
during  the  early  years  of  an  industry  than  later. 

There  has  been  more  or  less  of  an  association 
among  the  oil  refiners  who  have  made  the  Standard 
Oil  Company  since  1872.  This  did  not,  how- 
ever, in  the  earlier  years  seem  materially  to  affect 
this  margin,  which  kept  steadily  decreasing  until 
1879  or  1880.  The  Standard  Oil  Trust  was 
formed  in  1882.  From  that  time  on,  for  a  period 
of  eight  or  nine  years,  it  is  noticeable  that  there 
is  only  a  slight  decrease  in  the  margin.  From 
189 1  until  1898  the  margin  seems  to  have  been 
steadily  nearly  or  quite  a  cent  lower  than  for  the 
period  preceding.  But  the  period  of  the  smallest 
margin  seems  to  have  been  in  the  years  1893 
and  1894. 

Of  late  years,  according  to  the  testimony  of 
several  refiners,  there  has  been  a  very  decided  in- 
crease in  the  value  of  the  by-products,  the  profits 
from  the  by-products  being  apparently  equal  to 
.    153 


The  Trust  Problem 

those  from  illuminating  oil.  It  seems  to  be 
generally  conceded  that  the  rivals  of  the  Stand- 
ard Oil  Company  do  not  make  so  complete 
use  of  the  by-products  as  does  that  company. 
With  its  enormous  capital  it  has  a  decided 
advantage  in  that  regard,  and  shows  how  a 
combination  with  large  capital  may  save  a  waste 
of  competition,  or  of  production  on  a  small 
scale.  Under  these  circumstances  it  was  per- 
haps to  be  expected  that  the  price  of  refined 
petroleum,  as  compared  with  that  of  crude, 
would  have  lessened  still  more  than  has  been 
the  case. 

During  the  last  two  years  there  has  been  a 
decided  increase,  not  merely  in  the  price  of 
refined  petroleum,  but  also  in  the  margin  between 
crude  and  refined.  For  the  last  year  this  higher 
margin  is  to  be  partly  explained  by  the  added  cost 
of  refining,  coming  from  the  increase  in  cost  of 
supplies.  For  example,  refineries  are  constructed 
largely  of  iron,  and  deterioration  in  them  is  rapid. 
The  price  of  iron  has  increased  considerably 
more  than  lOO  per  cent,  during  this  period. 
It  is  also  true  that  within  the  last  year  there  has 
been  an  increase  amounting  at  times  to  as  much 
as  half  a  cent  per  gallon  in  the  cost  of  packages  in 
154 


Prices 

which  refined  oil  is  carried,  and  the  price  of  acids 
has  also  increased.  These  facts  would  explain,  in 
part  at  least,  the  increase  in  margin,  so  that  the 
profits  have  not  been  so  much  greater  than  they 
were  before,  as  might  be  inferred.  The  general 
testimony  of  the  independent  refiners,  however, 
seems  to  show  that  conditions  have  been  some- 
what easier  for  them  during  the  last  year  or  two 
than  earlier,  and  the  large  dividends  of  the 
Standard  Oil  Company  of  over  30  per  cent,  for 
each  of  the  last  three  years  would  also  seem  to 
indicate  that  profits  have  increased,  and  that  this 
has  been  a  chief  factor  in  the  increase  of  the 
margin. 

The  independent  oil  producers  have  said  much 
about  the  arbitrary  acts  of  the  Standard  in  fixing 
the  prices  of  crude  oil.  The  charge  of  arbitrary 
action  is  conceded  by  the  Standard  to  be  true 
in  special  cases.  That  organization  has  at 
times  in  special  localities  raised  the  price  of 
crude  oil  till  it  has  ruined  a  rival  pipe  line,  which 
was  also  a  buyer,  and  then,  on  the  absorption  of 
the  line,  has  lowered  it  again  to  the  great  disad- 
vantage of  the  oil-well  owners.  At  times,  too, 
where  it  has  been  almost  the  sole  buyer  of  crude 
oil,  it  has  kept  prices  so  low  that  well  owners 
155 


The  Trust  Problem 

were  practically  compelled  to  sell  out  to  it ;  then 
it  has  raised  the  price.  Most  of  these  instances 
have  to  do  with  special  localities  and  produce  no 
great  effect  on  the  entire  market,  though  they 
are  enough  to  add  decidedly  to  the  profits  of  the 
Standard  Oil  Company. 

The  greater  general  changes  seem  to  have  been 
due  to  the  changes  in  supply  brought  about  by 
other  causes.  The  discover)^  of  the  very  produc- 
tive fourth  sand  oil  wells  in  Butler  County,  Pa., 
only  about  eighty  feet  under  the  third  sand  levels, 
led  to  a  great  increase  in  production  and  the  con- 
sequent rapid  fall  in  price  noted  on  the  chart  in 
1873  and  1874.  Air.  Lee  claims  that  the  fall  of 
the  two  preceding  years  was  brought  about  by  the 
general  demoralization  in  the  business  caused  by 
the  relations  of  the  railroads  with  the  South  Im- 
provement Company  and  its  successors.  That 
year,  1873,  ^^^  ^^^^  ^^^  panic  year.  The  check- 
ing of  the  flow  in  the  next  three  years  raised  the 
price  again.  Then  the  discovery  of  the  famous 
Bradford  fields  in  1876  led  to  the  great  decline 
of  1877  and  1878.  Likewise  the  depression  in 
1 89 1  to  1893,  though  not  so  marked,  was  caused 
by  the  discovery  of  the  McDonald  field  in  Alle- 
gheny County,  Pa.,  with  some  of  the  largest  wells 
156 


PKICES   or   ITS   PLATE 


igi^i|4ij^gg^jglMilii;^i^^iiii^^ 


900 


C  =  Difference   b( 

0  =  Cost  of   105i  lbs.  steel 

E  =  Cost   of  imported  col<e 

F  =    '' 


and   B,   in 


ts  at   Pittsburg,   plus  2^  lbs.  tin 
plate,  per  full   weight  box,  laid 


Prices 

ever  known  in  this  country.  The  sudden  rise 
in  1895  seems  to  have  been  due  to  the  discov- 
ery of  the  fact  that  the  amount  of  oil  on  hand 
and  the  production  were  declining  very  rapidly 
as  compared  with  the  demand,  and  to  a  conse- 
quent desire  to  get  stocks  ahead.  It  was  thought 
that  some  of  the  refiners  had  sold  ahead  far 
beyond  their  capacity  to  supply  from  any  stock 
which  they  had  on  hand,  and  that  the  advance 
in  crude  oil  was  largely  arbitrary,  and  intended 
to  overthrow  them.  At  any  rate,  there  was 
urgent  demand  on  a  short  supply,  and  the  mar- 
ket was  largely  speculative  for  a  time.  In 
1897  ariother  decline  is  due  to  the  opening  of 
the  West  Virginia  fields,  while  the  present  rise 
is  to  be  ascribed  chiefly  to  another  decided  check 
in  the  output,  which  is  clearly  destined  to  grow 
worse  unless  new  fields  are  discovered. 

Tin  Plate'' 

The  most  striking  fact  which  appears  in  the 
chart  is  the  very  rapid  increase  in  all  prices  dur- 
ing the  year  1899 — in  steel  as  well  as  tin  plate. 

*  On  this  chart  the  prices  of  steel  billets  have  been  taken 
from  the  "  Iron  Age,"  which  is,  perhaps,  as  trustworthy  as 
any  single  authority  can  be. 

157 


The  Trust  Problem 

The  causes  of  the  rapid  increase  in  the  price 
of  steel,  the  chief  raw  material,  are,  perhaps, 
many,  but,  from  the  standpoint  of  the  manufac- 
turers and  for  our  purposes  here,  it  will  be 
sufficient  to  say  that  the  enormous  increase  in 
the  demand  for  steel  of  all  kinds  is,  perhaps,  to 
be  considered  as  first  and  most  important.  There 
has  been  during  the  past  year  a  decided  increase 
in  the  demand  for  steel  rails,  not  merely  for  the 
building  of  new  railroads,  but  also  for  the  relay- 
ing of  old  track  with  heavier  rails,  because  of 
the  heavier  rolling  stock  now  used  on  the  most 
important  roads. 

Structural  steel  for  buildings  is  now  used  in 
enormous  quantities,  whereas  for  this  purpose 
its  use  was  almost  unknown  ten  years  ago.  Steel 
bridges  on  railroads  and  elsewhere  are  rapidly 
displacing  all  the  wooden  bridges.  The  use  of 
pressed  steel  for  railroad  cars  is  almost  entirely 
new.      Chairman   Gates  of  the  American  Steel 

The  prices  of  tin  and  of  tin  plate  have  been  furnished  by 
Phelps,  Dodge  &  Co.,  of  New  York  city,  while  Mr.  Reid, 
president  of  the  American  Tin  Plate  Company,  has  him- 
self given,  as  nearly  as  was  possible,  the  cost  of  labor  of 
manufacturing  one  standard  box  of  tin  plate. 

These  figures  may  be  found  in  the  Preliminary  Report 
of  the  United  States  Industrial  Commission,  Vol.  I,,  pp. 
55,  868-9. 

158 


Prices 

and  Wire  Company  is  of  the  opinion  that  these 
later  uses  of  steel  have  increased  the  demand 
for  that  article  within  the  last  two  or  three  years 
by  more  than  the  total  output  of  steel  for  the 
whole  United  States  fifteen  or  twenty  years  ago. 
It  is  in  all  probability  due  to  this  enormous  de- 
mand for  new  purposes,  without  as  yet  a  cor- 
responding increase  in  the  facilities  for  produc- 
ing an  adequate  supply,  that  the  great  increase 
in  its  price  has  come  about.  The  increased 
demand  for  steel,  and  consequent  increased  price, 
has  been  to  a  considerable  extent  reflected  in 
the  prices  of  iron  ore  and  pig  iron,  in  the  charges 
for  the  transportation  of  ore,  and  in  the  higher 
wages  of  labor.  This  increase  in  the  price  of 
steel,  which  is  the  chief  raw  material  in  the 
manufacture  of  tin  plate,  of  necessity  has  forced 
up  the  price  of  tin  plate. 

Tin  has  increased  within  the  last  two  years 
from  some  ^14  a  hundred  to  double  that  price. 
Labor  also,  since  July  i,  1899,  when  the  new 
arrangements  were  made  with  the  Amalgamated 
Association  of  Iron,  Steel,  and  Tin  Workers, 
has  increased  some  20  per  cent,  on  the  average. 
The  line  D  represents  the  market  value  of 
1051^  lbs.  of  steel  plus  that  of  2^4  lbs.  of  tin, 
159 


The  Trust  Problem 

i.e.  :  the  value  of  the  raw  material  in  a  full- 
weight  box  of  tin  plate.  The  line  B  shows  the 
same  plus  the  cost  of  labor  to  manufacture  one 
box.  The  line  A  represents  the  price  of  a  full- 
weight  box  of  the  manufactured  product.  The 
diagram  shows  clearly  the  decided  increase  in 
all  of  these  costs. 

The  distance  from  the  base  of  the  chart  of 
the  line  C,  representing  the  perpendicular  dis- 
tance between  the  lines  B  and  A,  shows  then  the 
cost  of  manufacture,  aside  from  the  labor,  which 
is  included  in  B,  plus  the  profit  in  manufactur- 
ing. It  will  be  noted  that  from  the  beginning  of 
1895  up  to  the  middle  of  1897,  ^"  ^P^^^  °^  ^"^ 
decided  drop  in  the  latter  part  of  1895,  this  dif- 
ference between  the  cost  of  material  and  labor 
and  the  selling  price  of  the  tin  plate  remained 
somewhat  above  ^i,  say  ;^i.io  to  $1.20  a  box. 
During  1897  there  was  a  decline  in  price  with 
a  more  decided  fall  in  the  margin  between  the 
prices  of  the  raw  material  and  the  finished  prod- 
uct, shown  by  line  C,  which,  with  slight  vari- 
ations, continued  downward  until  October,  1898. 
Before  the  organization  of  the  American  Tin 
Plate  Company,  in  December,  1898,  there  had 
been,  in  October,  a  decided  increase  in  the 
160 


Prices 

price  of  tin  plate,  and  this  increase  had  been 
more  than  proportionate  to  the  increase  in  the 
price  of  the  raw  material,  which  had  advanced 
as  early  as  July.  It  was,  of  course,  known  to 
most  of  the  tin-plate  manufacturers  that  the 
combination  would  probably  be  formed,  and 
presumably  the  different  establishments  had  al- 
ready stopped  in  part  the  most  vigorous  compe- 
tition. This  increase  in  the  margin  between 
the  cost  and  selling  price  continued  rapidly  until 
March,  1899.  From  that  time  on  there  has 
been  no  further  general  increase  in  the  margin, 
although  there  have  been  fluctuations. 

The  very  strong  demand  for  tin  plate  would 
probably  have  enabled  the  manufacturers  to  in- 
crease this  margin,  even  if  the  combination  had 
not  been  made ;  but  the  union  of  practically  all 
the  manufacturers  under  one  management  en- 
abled them  to  make  the  best  use  of  the  oppor- 
tunity, and  thus  the  margin  was  put  back  to 
substantially  the  same  position  which  it  had  held 
during  the  year  1896  and  the  first  part  of  1897. 
Since  March,  1899,  however,  the  increase  in 
the  price  of  American  tin  plate  has  not,  on  the 
whole,  been  more  than  the  increase  in  the  value 
of  the  raw  material,  plus  the  increase  in  labor 
II  161 


The  Trus*-     Problem 

cost>  facts  which  were  testified  to  in  October 
by  officers  of  the  combination. 

The  course  of  events  seems  to  have  been  this : 
the  price  of  steel  and  tin  was  advancing  rapidly, 
and  this  advance  would  naturally  tend  to  lower 
the  margin  between  the  material  and  the  tin 
plate.  For  four  months,  from  March  to  June, 
1899,  the  price  of  tin  plate  was  not  increased, 
while  that  of  the  raw  material  did  increase, 
and  the  margin,  in  consequence,  fell.  In  July 
and  August  the  price  of  tin  plate  was  increased 
very  rapidly,  so  that  the  margin  was  put  back 
nearly,  but  not  quite,  as  high  as  in  March.  The 
continued  increase  in  the  prices  of  the  raw  ma- 
terial in  September  lowered  the  margin,  while  a 
temporary  decrease  in  the  prices  of  the  raw  ma- 
terial in  October  raised  it  again.  Another  in- 
crease in  the  price  of  the  raw  material  low- 
ered it  again  in  November  and  December.  It 
will  be  noted,  therefore,  that  on  the  whole  there 
has  been  not  a  relative  increase  in  the  margin, 
but  rather  a  slight  decrease  since  March,  1899, 
although  the  average  margin  is  considerably 
higher  than  at  any  time  during  the  year  1898, 
and  as  high  as  it  was  during  the  year  1896  and 
the  early  part  of  1897. 

Z62 


Prices 

It  will  be  noted  here  also,  as  in  other  cases, 
that  in  order  to  secure  the  same  profit  there 
should  be  a  slightly  greater  margin  when  the 
prices  of  the  raw  materials  are  high  than  when 
they  are  low.  It  may  fairly  be  considered, 
therefore,  other  things  equal,  that  profits  since 
March,  1899,  are  no  higher,  but  are  rather 
lower,  than  they  were  at  that  time,  even  though 
the  price  of  tin  plate  has  very  decidedly  in- 
creased. 

The  chart  seems  to  show  that  the  combina- 
tion had  power  at  the  beginning  to  press  the 
advantage  that  came  with  combination.  While 
the  margin  may  be  at  the  present  time  no  higher 
than  it  was  in  1896,  it  is  perhaps  fair  to  assume 
that  the  cost  of  manufacture  has  been  somewhat 
lessened,  and  that,  in  consequence,  the  profits 
would  be  now  rather  higher  than  they  were 
before  when  the  margin  v/as  the  same,  if  the 
added  price  of  raw  material  did  not  demand  an 
increase  in  the  margin  large  enough  to  offset  the 
decrease  in  cost  of  manufacture. 

The  line  E  represents  the  price  of  imported 

coke  tin  plate  per  full-weight  box  laid  down  at 

New  York,  duty  paid.      The  line  F  shows  the 

same  thing,  exclusive  of  duty.      The  distance, 

163 


The  Trust  Problem 

then,  between  these  two  lines  represents  the  duty 
and  the  average  rate  of  freight  from  the  Welsh 
port  to  New  York.  The  prices  are  the  cost  of 
importation  to  the  jobbers  without  profit.  The 
McKinley  tariff  of  2.2  cents  per  pound  took 
the  place  of  the  preceding  tariff  of  one  cent  a 
pound,  July  i,  1891.  It  is  noticeable,  how- 
ever, that,  anticipating  the  change,  the  price  of 
tin  plate  had  advanced  nearly  a  year  before,  so 
that  when  the  act  takes  effect  the  duty  appears 
as  a  drop  in  line  F.  The  lowering  of  the 
duty  to  1.2  cents  per  pound,  August  28,  1894, 
is  shown  clearly  by  the  drop  in  line  E  from 
September  to  October.  The  drop  in  price, 
however,  did  not  come,  so  that  it  shows  de- 
cidedly in  monthly  prices,  until  the  month  after 
the  duty  was  removed,  a  fact  which  appears  in 
the  sudden  rise  and  fall  of  line  F.  The  change 
from  1.2  cents  to  1.5  cents  per  pound  in  the 
Dingley  law,  taking  effect  July  24,  1897,  ^^ 
will  be  noted,  was  also  anticipated  some  six 
months  in  the  increased  price,  as  shown  in  line 
E  and  the  apparent  drop  in  line  F  when  the  act 
legally  took  effect. 


164 


PKICES   OF  STEEL   AXD   WIRE 


A 

3.00 

C 

• 

k 

_ih 

I  lRC,i!-, 

-!QO      1  rci;h  I  i  RCi/i   1  -1  RQ.'^'  1  1  soft  M  S"^?  11  RPR  1  '1  R^' 

m 

a 

|.M.     , 

3,00 
2.00 
1,00 

B  =  Pn. 
C  =  Pri. 
D   =Pri 


E  =  Difference  between  A  and  D. 
F  =  Difference  between  B  and  D, 
H  =  Difference  between  C   and    D. 


Prices 

Steel  and  JVtre* 

In  this  chart,  also,  the  most  noticeable  fact  is 
the  very  rapid  increase  in  all  prices  during  the 
year  1899.  This  increase  in  prices  is  to  be 
chiefly  ascribed  to  the  enormous  demand  both 
at  home  and  abroad  for  steel  of  all  kinds,  as 
was  explained  in  connection  with  the  chart 
showing  prices  of  tin  plate. 

If  we  note  the  line  H,  showing  the  margin 
between  the  price  per  hundred  pounds  of  steel 
billets  D,  the  raw  material,  and  that  of  wire  nails 
C,  the  finished  product,  we  shall  note  that  there 
was  a  steady  decline  in  this  margin  from  the  year 
1890  to  1895,  in  the  early  part  of  which  the 
lowest  point  was  touched.  During  the  latter 
part  of  1895,  and  until  nearly  the  close  of 
1896,  there  was  a  very  decided  rise,  not  merely 

*  The  prices  for  the  chart  showing  the  crude  and  fin- 
ished iron  and  steel  were  furnished  by  the  editor  of  the 
"  Iron  Age,"  at  the  request  of  Mr.  Gates,  chairman  of  the 
American  Steel  and  Wire  Company.  Prices  of  steel  bil- 
lets are  Pittsburg  prices  ;  those  of  barb  wire  are  those  at 
mill ;  those  of  smooth  wire  and  nails  are  New  York  prices. 
In  this  chart  steel  billets  have  been  taken  as  the  raw  ma- 
terial :  all  of  the  other  articles  may  be  considered  finished 
products.  [Report  of  Industrial  Commission,  Vol.  I., 
pp.  55,  56.] 

165 


The  Trust  Problem 

in  the  price  of  wire  nails,  but  also  in  the 
margin.  This  great  increase  in  the  margin 
was  due  chiefly  to  the  influence  of  the  wire- 
nail  pool,  which,  during  that  period,  secured 
substantial  control  of  the  market  for  a  time, 
as  is  explained  in  detail  in  the  chapter  on  Com- 
bination and  Monopoly,  p.  62.  The  sudden 
fall  in  the  latter  part  of  1896  came  at  the  time 
of  the  breaking  of  the  wire-nail  pool.  It  is  also 
true  that  at  about  the  same  time  there  was  a 
change  of  base  for  the  fixing  of  the  market 
prices  of  wire  nails,  but  this  change  in  the  base 
did  not  modify  materially  the  margin  as  it  ap- 
pears in  the  chart.  It  will  be  noticed,  however, 
that  after  the  break  in  the  wire-nail  pool  the 
margin  during  the  years  1897  ^^^  1898  still  re- 
mained considerably  higher  than  it  had  been  for 
three  years  before  the  formation  of  the  pool, 
with,  however,  a  steady  though  slight  decline. 

The  marked  increase  in  the  price  of  steel  bil- 
lets began  in  November,  1898  ;  the  increase  in 
the  price  of  wire  nails  followed  in  the  succeed- 
ing month,  and  both  have  increased  very  rapidly 
during  most  of  the  time  since.  The  American 
Steel  and  Wire  Company,  which  controls  from 
65  to  95  per  cent,  of  the  output  of  wire  nails, 
x66 


Prices 

was  formed  January,  1899.  ^^  addition  to  the 
increase  in  the  price  of  steel  billets,  there  has 
also  been  a  decided  increase  in  the  wao-es  of  the 

o 

laborers  engaged  in  the  manufacture  of  wire  and 
wire  nails. 

The  increase  in  the  wages  of  the  working- 
men  is  not  shown  in  the  chart,  but  from  testi- 
mony given,  the  increase  in  wages  among  the 
wire  and  nail  workers  has  been  greater  than  that 
among  the  workers  engaged  in  the  manufacture 
of  steel  billets,  so  that  there  would  normally  be, 
on  that  account,  some  increase  in  the  margin. 

Another  reason  for  an  increase  in  the  margin 
besides  that  of  an  increased  profit  is  this  :  There 
is  always  a  considerable  waste  in  turning  the 
raw  material,  steel  billets,  into  wire  or  wire 
nails.  If,  for  example,  this  loss  were  5  per 
cent,  in  the  case  of  steel  valued  at  $15  a  ton 
the  loss  would  be  75  cents,  whereas  if  steel 
were  ^^30  a  ton  the  loss  would  be  $1.50.  Steel 
has  more  than  doubled  in  price  ;  in  conse- 
quence, with  the  same  profit,  the  margin  should 
have  increased  somewhat. 

On  the  whole,  however,  it  seems,  both  from 
the  chart  and  from  outside  testimony,  that  the 
margin,  as  represented  by  the  line  H,  indicates 
167 


The  Trust  Problem 

also  quite  a  decided  increase  in  the  profits.  It 
will  be  noted  that  in  the  last  two  months  of 
the  year  1899  there  was  a  decided  falling  off 
in  this  margin,  showing  that  just  at  that  time, 
at  any  rate,  there  was  a  check  in  the  profits, 
the  finished  product  having  lost  a  little  in  price, 
while  steel  billets  had  gained.  In  October  the 
fall  in  price  of  billets  had  increased  profits. 
The  presumption  is  here,  as  in  the  case  of 
tin  plate,  that  there  would  have  been  without 
any  combination  a  decided  increase,  not  merely 
in  the  price  of  the  finished  product,  but  also 
in  the  margin  between  the  crude  and  the 
finished  product,  on  account  of  the  enormous 
demand.  The  testimony  seems  to  be  uniform 
on  this  point,  that  none  of  the  manufacturers 
have  been  able  to  meet  the  demand;  but  in 
this  case  also  it  seems  certain  that  the  combina- 
tion was  able  to  take  advantage  of  the  oppor- 
tunity better  than  individual  manufacturers  could 
have  done. 

Another  factor  needs  to  be  taken  into  account 
in  the  consideration  of  the  chart.  The  figures 
represented  are  those  furnished  by  the  "Iron 
Age.*'  It  is  probable  that  there  are  no  other 
figures  in  this  country  that  represent  more  nearly 
168 


Prices 

actual  market  conditions.  At  the  same  time 
each  individual  manufacturer  makes  his  sales 
independently,  and  these  sales  are  largely  made 
by  contracts  extending  over  a  period  of  some 
months,  sometimes  even  over  a  period  of  one 
or  two  years.  In  consequence  of  that  fact,  the 
majority  of  the  manufacturers  of  steel  may  be 
selling  their  output  on  a  contract  price  fixed  six 
months  before,  while  the  few  manufacturers 
who  are  making  late  sales  may  be  obtaining  a 
price  50  per  cent,  higher.  As  a  matter  of  fact, 
the  quoted  market  prices  during  the  first  half 
of  the  year  1899  were  probably  considerably 
higher  than  the  prices  actually  realized  by  the 
manufacturers.  On  the  other  hand,  it  is  also 
probable  that  the  prices  at  the  close  of  the  year 
1899  represent  much  more  nearly,  in  the 
case  of  both  the  crude  and  finished  product, 
the  real  prices  secured  by  the  manufacturers. 
While  these  different  circumstances  need  to  be 
taken  into  consideration,  it  is,  nevertheless, 
doubtless  true  that  the  chart  represents  fairly 
well  the  changing  conditions  of  business  during 
the  period  covered. 

Since   the   American  Steel  and   Wire    Com- 
pany was  formed,   Januar)',  1899,   the  margins 
169 


The  Trust  Problem 

between  the  crude  steel  and  all  the  finished 
products  seem  to  have  followed  substantially 
the  same  course,  the  relations  being  especially- 
close  during  the  later  months.  The  price  of 
smooth  wire  did  not,  however,  follow  that  of 
wire  nails  at  the  time  of  the  wire-nail  pool  in 
1895-96. 

Through  ownership  of  patents  the  American 
Steel  and  Wire  Company  has  a  legal  monopoly 
in  barb  wire,  so  that  we  should  expect  a  wide 
margin  between  A  and  D,  and  possibly  an  in- 
creasing one  from  the  combination  of  patents. 
The  line  E  shows  this  increase,  though  it  is 
not  much  more  rapid  than  that  shown  by  the 
lines  H,  representing  the  margin  for  wire  nails, 
and  F,  representing  that  for  smooth  wire.  On 
the  whole,  though,  the  great  increase  in  the 
price  of  all  these  finished  products  is  due  chiefly 
to  the  increase  in  that  of  the  raw  material. 
The  combination,  however,  seems  to  have  en- 
abled its  managers  to  have  made  the  best  use  of 
its  opportunities,  for  margins  as  well  as  prices 
of  products  increased  rapidly  from  the  date  of 
combination. 


CHAPTER  IX 

THE    TRUSTS    AND    WAGES 

If  the  Statements  made  in  the  preceding 
chapters  regarding  the  savings  of  the  wastes  of 
competition  are  true,  it  is  evident  that  industrial 
combinations,  through  these  savings,  create  a 
fund  from  which  the  wages  of  laborers  could  be 
raised,  provided  it  seemed  wise  to  the  managers 
to  raise  wages  instead  of  increasing  their  own 
profits  or  lowering  prices,  or  provided  the  labor- 
ers were  able  to  enforce  a  demand  upon  the-ir 
employers  for  higher  wages. 

Experience  also  seems  to  show  that,  when 
Trusts  are  first  formed  at  any  rate,  the  wages  of 
their  employees,  in  a  good  many  cases,  have 
been  raised,  although  later  at  times  men  have 
been  apparently  thrown  out  of  employment  ar- 
bitrarily by  the  sudden  closing  of  plants.  When 
the  Whiskey  Trust  was  first  organized  in  1887, 
the  wages  of  several  classes  of  employees  were 
comparatively  soon  raised.  Mr.  Greenhut,  the 
president  of  the  Trust,  in  his  testimony  before 
171 


The  Trust  Problem 

the  Committee  of  Manufacturers  of  Congress, 
testified  to  this  effect.*  He  expressed  the  opin- 
ion that  it  was  but  just  to  give  to  the  employees 
part  of  the  benefits  which  were  to  come  from 
the  new  form  of  organization.  He  stated  fur- 
ther in  conversation  that  public  opinion  was 
strongly  directed  against  the  Trusts  on  the  whole, 
and  that  it  was  perhaps  wise  to  show  that  the 
managers  of  these  organizations  did  not  intend 
to  conduct  them  selfishly  for  their  own  benefit 
solely,  but  that  they  wished  to  distribute  fairly 
among  those  engaged  in  production  the  advan- 
tages which  came  from  them. 

It  is  also  in  evidence  that  the  employees  of 
the  American  Sugar  Refining  Company  have 
had  their  wages  increased  somewhat,  although 
as  their  labor  is  largely  unskilled  the  increase 
has  not  been  at  all  great. 

According  to  testimony  from  both  the  man- 
agers of  the  Standard  Oil  Company  and  from 
its  opponents,  that  company  has  been  in  the 
habit  of  paying  to  all  its  employees  regular  stan- 
dard  wages,  and   in    many  cases  of   paying  to 

*50th  Congress,  Second  Session,  H.  R.  No.  4,165,  pp. 
66,  67. 

172 


The  Trusts  and  Wages 

those  who  showed  exceptional  diligence  or  skill 
in  their  work  very  high  wages.  It  is  certainly 
true  that  they  often  keep  their  employees  for  a 
series  of  years,  and  that  in  the  case  of  superin- 
tendents or  managers  or  those  acquiring  special 
skill  the  ablest  men  are  usually  chosen,  and  the 
wages  or  salaries  paid  are  high.  Recently  that 
company  is  reported  in  the  newspapers  to  have 
increased  wages  voluntarily  by  lO  per  cent. 
One  should  note  that  dividends  this  year  have 
already  been  over  40  per  cent. 

Within  the  last  two  or  three  years  the  new 
combinations  in  the  iron  and  steel  and  tin  plate 
industries  particularly  have  all  of  them  increased 
the  rates  of  wages,  but  some  of  them  have  also 
closed  plants  without  warning.  The  president 
of  the  Tin  Plate  Company  testified  that  the 
average  increase  in  wages  in  that  industry  had 
probably  been  15  per  cent.  The  American 
Steel  and  Wire  Company  had  increased  its 
wages  in  many  cases  as  much  as  40  per  cent., 
and  in  the  other  related  industries  the  wages 
had  been  increased  all  along  the  line.  It  is, 
however,  just  to  the  managers  themselves  to 
state  that  they  did  not  ascribe  this  increase  en- 
tirely, if  at  all,  to  the  formation  of  the  Trust. 
173 


The  Trust  Problem 

They  say  rather  that  it  is  due  to  the  pros- 
perous condition  of  the  business,  to  the  facts 
that,  owing  to  the  heavy  demand,  prices  have 
been  high,  and  that  the  employees  have  de- 
manded higher  wages.  It  seems  to  them  wiser 
to  make  arrangements  with  their  employees  for 
an  increase  of  wages  than  to  have  trouble  with 
them,  especially  in  so  prosperous  times.  In  con- 
sequence terms  were  made,  though,  in  some  in- 
stances at  least,  the  demands  of  the  working 
men  were  not  fully  granted,  the  increase  being 
rather  a  compromise  than  a  surrender.  Some 
of  the  employers  said  distinctly  that  these  in- 
creases in  wages  had  not  been  given  excepting 
as  the  result  of  demands  on  the  part  of  the 
working  men  themselves;  that  the  combinations 
made  no  pretences  toward  generosity. 

It  is  probably  true  that  in  most  cases  the  re- 
lations between  the  combinations  and  their  em- 
ployees have  been  and  will  remain  substantially 
the  same  as  those  between  the  officers  of  any 
large  corporation  and  their  working  men.  In 
individual  instances  wages  may  be  increased 
without  special  demands  being  made,  but  that 
will  probably  rarely  be  the  case. 

As  the    combination    has    secured    additional 

1/4 


The  Trusts  and  Wages 

power  in  many  instances  over  the  producers  of 
raw  material,  it  is  fair  to  ask  whether  this  power 
will  not  extend  also  over  the  working  men,  so 
that  in  the  event  of  a  disinclination  to  meet  their 
demands  for  higher  wages  or  an  inclination  to 
lower  their  actual  wages,  the  combination  would 
not  have  more  power  in  carrying  out  its  wishes 
than  would  competing  corporations.  There 
seems  to  be  little  doubt  that,  speaking  generally, 
other  things  being  equal,  this  would  be  the  case. 
If  the  combination  is  substantially  the  only  em- 
ployer of  labor  in  its  special  line  of  industry, 
men  trained  in  that  line  of  work  and  untrained 
in  others  would  find  practically  only  the  one 
employer  to  work  for.  This  would  to  a  con- 
siderable extent  put  them  in  the  power  of  that 
employer  in  the  same  way  that  the  consumer 
is  to  a  considerable  extent  within  the  power 
of  the  combination  which  controls  90  per  cent, 
or  upwards  of  the  output  of  any  industry  of 
which  he  must  buy  the  product. 

A  better  means  of  judging  the  situation  will 
be  found  if  we  consider  the  actual  and  possible 
attitude  of  the  combinations  toward  trade  unions. 
So  far  as  can  be  gathered  from  information  as 
yet  accessible,  while  there  are  exceptions,  nearly 
175 


The  Trust  Problem 

all  of  the  combinations  have  assumed  no  hostile 
attitude  toward  trade  unions,  but  have  rather 
dealt  with  them  in  accordance  with  the  wishes 
of  their  managers.  Chairman  Gates  of  the 
American  Steel  and  Wire  Company  insists  posi- 
tively that  his  organization  has  not  recognized 
trade  unions  and  will  not  recognize  them.  It  will 
deal  with  its  employees  as  individuals  and  not 
with  representatives  of  the  union.  On  the 
other  hand,  nearly  all  of  the  other  iron  and  steel 
combinations  treat  willingly  and  readily  with  the 
representatives  of  organized  labor.  This  has 
been  true  of  the  American  Tin  Plate  Company, 
of  the  National  Steel  Company,  of  the  American 
Steel  Hoop  Company,  of  the  Federal  Steel  Com- 
pany, and  perhaps  of  others,  there  being  appar- 
ently on  the  part  of  the  managers  of  all  of  these 
companies  no  hostility  whatever  to  labor  organi- 
zations, but  a  perfect  readiness  to  meet  them  and 
to  deal  with  them  as  do  most  smaller  corporations 
or  individual  employers. 

In  case  of  a  contest  arising  between  the  trade 
unions  and  one  of  the  greater  combinations,  it 
seems  evident  that,  unless  the  unions  have  greater 
power  than  is  usual,  the  combination,  having 
under  its  management  a  number  of  different 
176 


The  Trusts  and  Wages 


o 


manufacturing  plants,  perhaps  from  twenty  to 
forty,  will  have  a  decided  advantage  over  the 
individual  corporation  with  only  one  or  two 
plants.  If  a  strike  were  threatened  in  one  of 
the  plants  of  the  combination,  it  could,  with 
comparatively  little  difficulty,  transfer  its  orders 
to  its  other  establishments  and  close  the  one 
involved  without  a  loss  which  would  in  any 
degree  approximate  the  proportionate  loss  of  a 
single  corporation  closing  its  one  plant  in  case 
of  a  strike.  During  the  last  year,  this  threat  is 
said  to  have  been  made  in  the  case  of  the  smelt- 
ers* strike  in  Colorado.  The  strikers  were  told 
that  if  they  persisted  in  their  demands  the 
organization  would  close  the  establishment  in 
which  the  strike  was  threatened  and  transfer 
the  orders  to  other  plants. 

When  trade  is  dull,  too,  the  combination  in 
like  manner  is  likely,  rather  ruthlessly  it  seems 
at  times,  to  close  part  of  its  plants  with  practi- 
cally no  warning.  Individual  employers  with 
only  one  plant  are  likely  to  hesitate  somewhat 
longer.  The  effect  on  the  laboring  class  as  a 
whole  of  a  checking  of  production  in  many  in- 
dependent plants  is  probably  as  great  as  in  the 
eiFect  of  closing  entirely  one  or  two  plants  by  a 

12  177 


The  Trust  Problem 

Trust.  It  does  not  attract  so  much  atten- 
tion. 

If  the  trade  unions  were  to  extend  their 
membership  until  the  one  union  or  federation 
of  unions  had  in  its  membership  practically  all 
of  the  workers  in  the  country  in  one  line  of 
industry,  the  situation  would  be  entirely  changed. 
Under  those  circumstances  a  strike  in  one  es- 
tablishment would  be  immediately  followed,  if 
need  arose,  by  a  strike  in  all  of  the  establish- 
ments of  the  combination,  so  that  not  merely 
would  the  work  stop  in  the  one  place,  but  in  all, 
and  the  effect  upon  the  employer  would  be  as 
great,  or  even  to  a  considerable  extent  greater, 
than  in  the  case  of  a  strike  against  a  single  cor- 
poration which  possesses  but  one  manufacturing 
plant. 

Many  of  the  leaders  of  the  trade  unions,  such 
as  Samuel  Gompers,  the  president  of  the  Amer- 
ican Federation  of  Labor,  seem  to  think  that  it 
will  be  by  no  means  impossible  for  the  trade  unions 
to  perfect  their  organization  as  satisfactorily  as 
can  the  organizers  of  capital  improve  theirs,  so 
that  they  will  be  able  to  resist  the  encroachments 
of  capital  without  difficulty.  And  again,  if  the 
organization  of  capital  by  means  of  its  savings 
178 


The  Trusts  and  Wages 

creates  a  fund  from  which  the  laborers  could 
draw  if  they  had  the  power,  these  union  leaders 
are  inclined  to  believe  that  they  can  secure  their 
full  share  of  the  funds  thus  brought  about  by  the 
increased  savings.  They,  therefore,  assume  no 
especially  hostile  attitude  toward  the  combina- 
tions, which  they  consider  inevitable,  but  are, 
on  the  whole,  rather  inclined  to  favor  them, 
thinking  that  the  laborers  have  the  power  to 
secure  their  proper  share  of  any  savings  which 
may  accrue  to  the  community  from  combination. 

It  will  be  noted,  of  course,  that  if  wages  are 
thus  increased  to  the  wage  earners,  the  result 
must  inevitably  be  a  checking  of  either  the  pro- 
fits of  the  employer,  or,  what  is  perhaps  more 
likely,  of  the  lowering  of  the  price  to  the  con- 
sumer. 

The  real  contest  in  many  cases  when  laborers 
press  their  employers  for  higher  wages  is  with 
the  consumers.  Wages  can  be  increased  if 
prices  rise ;  and  employers  not  infrequently  find 
the  consumer  more  docile  than  the  laborer. 
Under  such  circumstances  the  workman  at 
times,  as  consumer,  gives  back  to  his  employer 
a  good  part  of  what  he  has  received  from  him 
as  an  increase  of  wages;  but  even  in  this  case 
179 


The  Trust  Problem 

the  new  distribution  proves  to  the  advantage  of 
the  laborers  as  a  class.  Not  all  is  paid  back, 
for  there  are  other  consumers. 

If  by  combination  of  capital  with  its  saving  of 
energy  a  new  fund  of  wealth  has  been  created, 
the  capitalist  and  employer  will  try  first  to  take 
it,  and  will  claim  that  it  is  theirs  justly,  for  they 
have  by  their  intelligent  action  created  this  fund. 
The  workmen  will  strive  to  secure  it  in  the 
form  of  higher  wages,  and  claim  that  it  is  justly 
theirs,  for  some  of  them  have  been  thrown  out 
of  employment  to  make  it,  and  theirs  is  the 
labor  that  is  used  to  better  advantage.  The 
consumers  will  try  to  secure  it  through  demand- 
ing lower  prices,  and  they,  too,  will  try  to  justify 
their  claim.  These  savings,  they  say,  would 
not  have  been  possible  save  under  modern  social 
and  economic  conditions  and  laws,  for  which 
society  as  a  whole,  and  no  one  special  class, 
should  have  the  credit. 

The  actual  disposition  of  the  fund  will  be 
arranged  by  struggle.  If  the  combination  does 
not  succeed  in  holding  competition  down,  the 
Largest  part  will  probably  in  the  long  run  get  to 
the  consumers  in  lower  prices,  though,  at  times, 
as  indicated  in  the  last  chapter,  the  employer 
i8o 


The  Trusts  and  Wages 

will  take  it  and  probably  be  forced  to  divide  with 
his  workmen.  If  competition  is  kept  down, 
the  employer  will  take  the  larger  part  at  first; 
but  he  will  be  compelled  soon  to  give  part  to 
the  wage  earners,  if  they  are  well  organized  and 
insistent,  while  the  consumer,  too,  will  probably 
eventually  get  part  under  the  influence  of  a 
threatened  competition. 

It  will  probably  be  true  that,  in  the  case  of  a 
contest  between  organized  capital  and  organized 
labor,  the  sympathy  of  the  public  will  be  on  the 
side  of  labor;  so  that  whatever  benefit  comes  to 
either  side  from  the  pressure  of  public  opinion 
is  likely  to  accrue  to  the  laborer.  There  is,  to  be 
sure,  on  the  part  of  a  good  many  a  prejudice 
against  labor  unions,  and  particularly  against 
those  that  have  assumed  great  proportions  and 
acquired  great  strength.  It  is  possible  that  public 
opinion  might  even  turn  against  them,  provided 
they  were  to  control  substantially  all  of  the 
working  men  in  any  line  of  industry.  But  it  is 
much  more  likely  that,  for  a  long  time  to  come, 
the  aggressions  of  capital  will  arouse  much  more 
hostility  on  the  part  of  the  public  than  those  of 
labor.  In  this  contest,  then,  between  the 
Trusts  and  the  laborers,  the  advantage  of  public 
i8i 


The  Trust  Problem 

opinion  will  remain  chiefly  with  the  laborer. 
But,  for  the  present,  contests  between  the  Trusts 
and  their  employees  have  rarely  arisen,  except- 
ing in  the  case  of  certain  classes  of  working- 
men  who  have  been  discharged  by  the  combina- 
tions because  their  services  are  no  longer  needed. 

Attention  has  already  been  called  to  the  fact 
that  certain  classes  of  workingmen,  such  as 
commercial  travellers,  are  no  longer  needed  in 
so  great  numbers  by  the  combinations  as  by  the 
separate  competing  establishments.  It  will  be 
recalled  that  the  Whiskey  Combination  was 
able  to  dispense  with  the  services  of  some  three 
hundred  travelling  men  upon  its  organization; 
that  the  American  Steel  and  Wire  Company 
was  able  to  discharge  some  two  hundred  travel- 
ling men ;  and  many  other  similar  instances  have 
been  found. 

Naturally  the  travelling  men  themselves,  and 
in  many  cases  others,  are  inclined  to  think  that 
this  discharge  of  travelling  men  is  in  itself  a 
serious  industrial  evil.  Reflection,  however, 
will  show  that  if  the  work  is  rendered  really  no 
longer  necessary  in  order  to  supply  the  needs  of 
consumers,  or  if  the  work  can  be  equally  well 
done  by  fewer  men,  the  saving  of  this  labor  is  a 
182 


The  Trusts  and  Wages 

distinct  industrial  gain  similar  to  that  which  is 
found  upon  the  introduction  of  a  new  machine. 
It  is  true,  of  course,  that  suffering  is  likely  to  be 
the  lot  of  those  discharged ;  as,  in  earlier  days, 
upon  the  introduction  of  the  power  loom,  many 
of  the  weavers  were  reduced  to  poverty,  even  to 
starvation.  If,  however,  as  seems  to  be  the  case, 
a  real  saving  is  effected  by  combination,  though 
individuals  may  suffer,  the  working  classes  as  a 
whole  will  be  benefited,  not  merely  by  the  re- 
duced price  of  the  article  itself  (if  the  Trust 
permits  it  to  be  reduced),  so  far  as  they  are  con- 
sumers, but  also,  within  a  comparatively  short 
time,  by  the  increased  demand  that  will  come  for 
their  services  through  the  increased  demand  for 
the  goods  brought  about  by  lowered  prices.  The 
advocates  of  the  combinations  do  not  hesitate  to 
claim  that  this  will  be  the  effect,  and  any  care- 
ful thinker  will  be  inclined  to  agree  that  if  the 
saving  is  a  real  one  this  must  be  the  case,  unless 
the  Trust  itself  absorbs  all  the  savings. 

Aside  from  the  commercial  travellers,  how- 
ever, the  class  of  employees  that  seems  to  be 
injured  most  is  that  of  the  superintendents  or  of 
the  higher  officers  of  the  corporations  which 
enter  into  the  combination.  In  not  a  few  in- 
183 


The  Trust  Problem 

stances,  many  of  the  officers  have  been  re- 
moved. 

Mr.  Gary,  President  of  the  Federal  Steel  Com- 
pany, testified  before  the  Industrial  Commis- 
sion that  large  savings  had  been  effected  through 
the  displacement  of  unnecessary  officers  in  the 
companies  which  entered  the  Federal  Steel  Com- 
pany, and  that  some  gain  had  also  been  made 
by  the  reduction  of  the  salaries  of  officers  that 
remained,  inasmuch  as  they  were  given  less  re- 
sponsible positions.  He  submitted  a  table  show- 
ing the  number  of  employees  of  all  classes  dur- 
ing the  years  1898  and  1899,  ^^^^  their  com- 
parative wages.  This  showed  an  increase  of 
4.76  per  cent,  in  the  number  of  officers  and 
clerks,  but  a  decrease  of  6. 26  per  cent,  in  their 
average  daily  pay,  making  a  slight  decrease  in 
the  total  expenditures.  Considering  the  de- 
cided increase  in  the  number  of  laborers  and  the 
large  increase  also  in  the  amount  of  business 
done,  that  seems  to  be  a  noticeable  saving. 

Mr.  Gates,  Chairman  of  the  American  Steel  and 
Wire  Company,  testified  also  to  the  same  effect. 
The  official  organizations  of  the  separate  plants 
that  are  in  the  American  Steel  and  Wire  Com- 
bination had  been  to  a  considerable  extent  done 
184 


The  Trusts  and  Wages 

away  with.  Each  plant  formerly  had  its  presi- 
dent, vice-president,  manager,  and  other  officers, 
most  of  whom  had  been  discharged,  the  busi- 
ness being  put  in  the  charge  of  the  men  in  the 
central  offices  in  New  York  and  Chicago  and 
the  plants  being  operated  under  the  direction  of 
district  superintendents.  He  was  of  the  opinion 
that  perhaps  50  per  cent,  of  the  high-priced 
officers  had  been  dispensed  with,  as  well  as  the 
two  hundred  travelling  men  mentioned  before. 

The  fact  that  the  laborers  discharged  by 
the  combinations  are  to  a  considerable  extent 
superintendents  and  travelling  men,  two  classes 
of  high-priced  laborers,  is  likely  to  promote  less 
hostility  on  the  part  of  the  laboring  classes  than 
if  it  were  the  ordinary  workingmen  who  were 
discharged.  In  either  case,  however,  the  in- 
dustrial effect  depends,  of  course,  on  the  use 
that  is  made  of  these  savings.  If  they  go  en- 
tirely to  increase  the  salaries  of  the  officers  that 
remain,  or  perhaps  even  in  dividends  to  the 
stockholders,  the  savings  will  be  considered  of 
less  general  industrial  benefit  than  if  they  go,  to 
a  considerable  degree  at  least,  to  the  public  in 
the  way  of  reduced  prices  or  to  the  common 
laborers  in  increased  wages. 
185 


The  Trust  Problem 

The  experience  so  far  would  seem  to  show 
that  labor  has  been  made  more  efficient  by  com- 
binations of  capital;  that,  owing  to  the  better 
organization,  there  is  a  larger  average  output  per 
workman ;  and  that  the  benefits  of  this  increased 
efficiency  have  been  divided  between  employers 
and  workmen,  the  consumer  receiving  as  yet 
relatively  little  benefit  directly.  The  last  two 
years,  however,  have  been  very  exceptional,  and 
it  is  as  yet  too  soon  to  speak  with  certainty  as  to 
ultimate  results.  So  far,  at  any  rate,  no  damage 
to  the  laborers  as  a  class  seems  to  have  resulted, 
either  in  the  way  of  decreased  wages,  in  spite 
of  the  classes  mentioned  before  that  have  clearly 
been  injured,  or  in  the  way  of  less  steadiness  of 
employment.  In  fact,  it  is  probable,  as  regards 
the  latter  feature,  that  employment  may  be 
made,  and  probably  has  been  made,  somewhat 
more  steady,  in  spite  of  the  fact  that  in  some 
instances  individual  plants  have  been  closed,  ap- 
parently with  no  good  reason,  excepting  to 
shorten  the  output  in  order  that  prices  may  be 
kept  up,  or,  worse  yet,  to  affect  the  stock  mar- 
ket. Such  acts  cannot  be  too  severely  con- 
demned. Happily  they  are  not  common,  and 
the  evil  can  apparently  be  reached  by  legisla^ 
i86 


The  Trusts  and  Wages 

tion.  Numerous  charges  to  the  effect  that 
the  combinations  have  shortened  the  output  in 
different  industries  for  the  sake  of  putting  up 
prices  have,  of  course,  been  made,  but  a  careful 
study  of  all  the  evidence  presented  in  different 
investigations  along  this  line  seems  to  show  that 
this  contention  is  often  not  justified.  It  is 
doubtless  true  that  in  individual  cases  plants 
have  been  closed  for  the  sake  of  cutting  off  some 
one  rival ;  but,  generally  speaking,  plants  closed 
are  either  unfortunately  situated  or  have  not 
been  skilfully  managed. 

If  the  power  of  the  labor  organizations  keeps 
itself  commensurate  with  that  of  the  combina- 
tions of  capital,  it  is  probable  that  the  tendency 
toward  the  combination  of  these  two  at  the  ex- 
pense of  the  consumer  will,  for  a  time  at  least, 
increase.  The  plan  suggested  by  Mr.  E.  P. 
Smith,  of  Birmingham,  England,  to  avoid  strikes 
and  other  difficulties  between  employers  and  their 
employees,  is  of  this  nature.  His  suggestion  is 
that  combinations  complete  enough  to  control 
in  good  part  an  entire  industry  be  made  among 
employers  on  the  one  hand  and  employees  on 
the  other  ;  that  a  committee  representing  both 
classes  fix  the  relations  between  them  as  re- 
187 


The  Trust  Problem 

gards  wages,  and  to  a  considerable  extent  also 
as  regards  prices,  it  being  understood  that 
wages  shall  be  fairly  high  and  profits  fairly- 
large.  In  case,  then,  any  new  competitor  of 
the  capitalistic  class  comes  into  the  business,  by 
agreement  of  both  parties  prices  would  be  cut 
to  his  customers,  if  necessary,  and  laborers  in 
that  line  of  industry  would  refuse  to  enter  into 
his  employ.  On  the  other  hand,  if  laborers  in 
that  industry  were  to  increase  beyond  the  nor- 
mal demand  of  those  in  the  combination,  they 
would  be  opposed  by  the  laborers  already  em- 
ployed, and  the  employers  in  the  organization 
would  refuse  to  give  them  work.  While 
this  plan  has  been  proposed,  and  perhaps  justi- 
fied, both  in  theory  and  in  practice,  most 
efficiently  by  Mr.  Smith,  it  is  nevertheless  true 
that  in  this  country,  in  Chicago  at  any  rate, 
similar  combinations  in  one  or  two  lines  of  in-' 
dustry  have  been  effected.  The  '^  forgotten 
man"  in  this  case  seems  to  be  the  consumer, 
inasmuch  as  the  rate  of  profits  and  the  rate  of 
wages  being  both  fixed  by  interested  parties, 
although  called  fair,  are  likely  to  be  higher  than 
in  many  cases  would  be  considered  fair  by  the 
consumer. 

i88 


The  Trusts  and  Wages 

An  attorney  of  one  of  the  prominent  Trusts 
said  some  little  time  ago  that,  in  his  judgment, 
the  ultimate  outcome  of  the  combinations  of 
capital  would  be  that  their  profits  would  be 
restricted,  either  by  governmental  action  or 
otherwise,  to  a  normal  rate  of  five  or  six  per 
cent.,  and  that  after  this  profit  was  paid  the 
surplus  arising  from  the  savings  of  the  com- 
bination would  be  divided  between  the  la- 
borer in  high  rates  of  wages  and  the  consumer 
in  low  prices.  He  was  not  at  all  clear  as  to 
the  forces  which  would  bring  about  this  result, 
beyond  the  fact  that  in  some  way  public  opinion 
would  restrict  closely  the  profits  of  the  employer 
to  what  most  people  believed  to  be  a  fair  rate. 
It,  however,  seems  to  be  an  easier  step  to  secure 
a  combination  of  employer  and  employee  at  the 
expense  of  the  consumer  than  of  the  employee 
and  the  consumer  at  the  expense  of  the  em- 
ployer. If  the  employer  is  to  be  closely 
restricted,  it  must  doubtless  be  through  legisla- 
tion. 


189 


CHAPTER  X 

POLITICAL    AND    SOCIAL    EFFECTS 

Whatever  may  be  the  effects  of  industrial 
combinations  upon  prices,  or  wages,  or  profits,  or 
investors  in  stocks,  it  is  thought  bv  many  that 
they  have  a  more  subtle,  and  perhaps  on  that 
account  more  dangerous,  effect  upon  our  politi- 
cal and  social  organization  and  upon  the  morals 
of  individuals. 

It  is  a  matter  of  common  rumor  and  almost 
of  common  belief  that  the  railroads  and  the 
large  industrial  combinations  are  able  to  in- 
fluence to  a  material  extent  the  acts  of  our 
legislatures  and  even  the  decisions  of  our 
courts.  This  influence  is  thought  by  many  to 
constitute  their  chief  menace  to  the  integrity  of 
our  institutions  and  the  welfare  of  the  country. 

It  is  doubtless  true  that  in  many  cases  large 
sums  are  paid  by  corporations  to  affect  in  some  way 
or  other  the  actions  of  legislatures.  The  officers 
of  the  corporations  or  their  friends,  if  they  speak  at 
all  on  the  subject,  are  likely  to  say  that  "strike  ** 
190 


Political  and  Social  Effects 

bills  are  frequently  introduced  in  the  legislatures 
for  the  especial  purpose  of  threatening  their  in- 
terests, in  order  that  certain  of  the  members  may 
be  paid  to  withdraw  the  hostile  bill  ;  and  that  it 
has  been  found  both  cheaper  and  much  more 
effective  to  pay  the  very  few  people  who  employ 
this  blackmailing  plan  than  to  attempt  to  defeat 
the  hostile  bill  by  fair  argument.  It  seems  also 
to  be  true  at  times  that  a  bill  which  may  be  en- 
tirely proper  and  even  beneficial  to  the  public 
in  its  nature,  but  which  also  favors  particularly 
the  interests  of  some  of  the  larger  corporations, 
may  be  opposed  by  the  party  leaders  or  by  in- 
dividual representatives,  until  an  amount  of 
money  has  been  paid  either  to  party  managers  or 
to  enough  individual  members  of  the  legislature 
to  secure  the  passage  of  the  bill.  Not  long 
since  a  bill  which  was  said  to  be  entirely  in  the 
public  interest,  as  well  as  in  that  of  one  of  the 
large  corporations,  could  be  passed  in  the  legis- 
lature of  one  of  our  larger  States,  it  was  re- 
ported, only  by  the  payment  of  $150,000  to  the 
leader  of  the  party  in  power.  Some  of  the  larger 
corporations,  business  men  say,  expect  to  set  aside 
for  such  uses  a  considerable  sum  to  be  charged 
to  business  expenses. 

191 


The  Trust  Problem 

Before  a  committee  of  Congress,  Mr.  Have- 
meyer  testified  that  the  American  Sugar  Refin- 
ing Company  contributed  in  some  States  to  the 
campaign  fund  of  the  Republican  party,  in  others 
to  that  of  the  Democratic  party,  the  intention 
being  to  stand  well  with  the  dominant  party  in 
each  State.  It  was  presumed  that  this  custom 
was  followed  in  order  that,  through  the  influence 
of  the  dominant  party,  both  hostile  legislation 
might  be  warded  off  in  case  of  need,  and  mea- 
sures, which,  on  the  whole,  were  favorable  to 
the  interests  of  the  company,  might  be  more 
carefully  considered  perhaps  than  would  other- 
wise be  the  case. 

While  it  is  probable  that  many  individual 
cases  of  this  kind  occur,  and  that  corporations, 
both  in  self-defence  and  for  the  sake  of  further- 
ing their  own  interests,  do  at  times  buy  members 
of  legislatures,  it  is  likewise  probable  that  the 
prevalence  of  this  custom  is  not  a  little  exagger- 
ated by  many  people,  and  especially  by  certain 
sections  of  the  press.  It  is  certainly  true  that 
the  character  of  individual  legislators  and  their 
faithfulness  to  their  trust  are  considerably  better 
than  is  commonly  assumed  in  popular  discussion 
in  the  newspapers. 

192 


Political  and  Social  Effects 

But  if  we  grant  that  corruption  of  the  legis- 
latures and  even  of  the  courts  on  the  part  of  the 
large  corporations  is  not  infrequent,  does  it  follow 
that  the  corporations  should  themselves  be  de- 
stroyed, or  that  they  are  chiefly  to  blame  ?  Cer- 
tainly no  distinction  can  be  made  in  this  regard 
(although  in  other  respects,  as  Mr.  Bryan  prop- 
erly showed  at  Chicago,  differences  are  clearly 
to  be  noted)  between  the  capitalistic  combina- 
tions called  Trusts,  and  railroads  or  partnerships 
or  wealthy  individuals,  and  the  evil  seems  to  be 
common  to  all.  The  fault  seems  to  be  rather 
with  the  legislatures  and  the  character  of  the  men 
whom  we,  the  public,  send  to  them,  or  with 
our  ethical  and  social  standards,  than  with  cor- 
porations as  such.  If  the  combinations  have 
good  features  about  them,  it  would  certainly  be 
unwise  to  attempt  to  destroy  them  because  our 
legislators  were  dishonorable  men.  A  much 
wiser  as  well  as  a  much  more  certain  and 
probably  an  equally  practical  measure,  would 
be  to  endeavor  in  some  way  to  improve  the 
character  of  our  legislators  by  better  methods 
of  election,  or  by  general  education,  or  to  lessen 
the  opportunities,  through  rules  of  our  legisla- 
tures or  otherwise,  of  those  who  are  unscrupulous 
13  193 


The  Trust  Problem 

enough  either  to  blackmail  a  well-meaning  cor- 
poration, or  to  take  dishonest  pay  from  a  dis- 
honorable corporation.  That  the  political  evil 
exists,  is  beyond  question.  That  its  cause  is 
mainly  the  Trust  and  its  only  remedy  the  de- 
struction of  the  Trust  by  no  means  follows, 
although  that  seems  to  be  a  normal  presumption 
by  very  many. 

Of  much  greater  significance  on  the  whole  is 
the  effect  of  industrial  combination  upon  our 
social  organization.  The  democratic  social 
systems  of  the  United  States  and  of  many  of  the 
newer  English  colonies,  seem  to  have  developed 
a  power  of  self-control  and  of  self-direction  in 
the  individual  citizen  which  can  rarely  be  found 
elsewhere  in  the  world.  This  power  of  self- 
direction  is  found  to  a  remarkable  extent  often 
in  local  governments,  and  in  individuals,  espe- 
cially in  business  men.  The  chief  purpose  even 
of  our  school  systems,  in  the  judgment  of  many 
of  our  ablest  and  most  high-minded  teachers,  is 
to  develop  among  our  rising  citizens  this  power 
of  self-control.  In  fact,  M.  Demolins,  in  his 
most  interesting  book,  "Anglo-Saxon  Superior- 
ity,*' ascribes  the  success  of  the  English-speak- 
ing peoples  in  self-government  and  in  the 
194 


Political  and  Social  Effects 

establishment  of  colonial  systems  largely  to  this 
independent  spirit,  which  he  thinks  has  been 
developed  in  our  systems  of  education,  both  that 
of  the  schools  and  that  of  the  home,  in  the 
inclination  of  parents  and  teachers  to  compel 
children,  especially  the  boys,  to  rely  upon  them- 
selves in  all  the  ordinary  emergencies  of  life. 

It  is  thought  by  many  that  competition  in 
industry  develops  this  power  of  individual  self- 
direction,  while  the  Trust  system  destroys  it. 
Under  the  competitive  system,  each  cares  for 
his  own.  The  one  who  shows  on  the  whole 
the  greatest  power  of  self-reliance,  self-direction, 
and  skill — the  fittest — is  the  one  who,  in  the 
competitive  struggle,  survives.  As  his  weaker 
rivals  fall  out,  the  plane  of  efficiency  is  elevated 
and  the  whole  industrial  structure  is  raised. 
This  competitive  struggle  among  individuals 
may  be  cruel  in  its  effects  upon  those  who  lose, 
but  from  the  strictly  economic  point  of  view  it, 
so  far  at  least,  has  generally  seemed  best  for  so- 
ciety, inasmuch  as  it  has  resulted  in  the  success 
of  the  one  most  fit  whenever  the  competition 
has  been  legal  and  just. 

When,  on  the  other  hand,  combinations 
among  competitors  are  first  made,  the  weaker, 
195 


The  Trust  Problem 

instead  of  being  forced  to  the  wall,  are  saved, 
although  their  establishments  may  be  closed  by 
the  combinations,  and  although  they  may  have 
been  taken  into  the  combination  on  terms,  rela- 
tively speaking,  unfavorable.  When  the  Whiskey 
Combination  was  organized  with  its  eighty  sep- 
arate distilleries,  of  which  nearly  seventy  were 
almost  immediately  closed  or  dismantled,  unless 
in  fact  they  had  been  closed  before,  dividends 
were  paid  equally  upon  all  the  property,  although 
the  absolute  amounts  paid  to  the  stockholders 
who  had  put  in  their  plants  at  low  prices  were, 
of  course,  comparatively  small.  When,  in 
1887,  the  Sugar  Trust  was  organized,  the 
weaker  competitors  were  not  forced  to  the 
wall,  but  were  taken  into  the  combination,  al- 
though, doubtless,  at  a  low  valuation. 

Aside  from  the  effect  upon  individual  char- 
acter, consider  first  whether  the  community 
loses  or  gains  economically  by  this  apparent 
preference  of  the  combination  to  buy  up  weaker 
establishments  rather  than  to  force  them  out  of 
existence  by  a  more  determined  competitive 
struggle.  From  the  standpoint  of  the  creditors 
it  is  probable  that  there  is  com.paratively  little 
difference  in  the  methods  employed.  If  compe- 
iq6 


Political  and  Social  Effects 

tition  should  continue,  and  the  weaker  producer 
be  forced  into  bankruptcy,  so  that  his  creditors 
would  receive  but  fifty  cents  on  a  dollar,  they 
would  lose  by  so  much.  If,  on  the  other  hand, 
with  the  man's  business  in  the  same  low  condi- 
tion, the  establishment  is  bought  up  at  fifty  cents 
on  the  cost  price,  if  the  man  is  honestly  eager 
to  pay  his  debts,  the  situation  is  probably  not  ma- 
terially different.  A  man  who  is  compelled  to 
sell  to  a  combination  at  what  he  believes  to  be 
less  than  the  value  of  his  establishment  under 
the  competitive  system,  may,  of  course,  have 
feelings  of  bitterness  toward  the  combination 
that  the  bankrupt  would  not  have  toward  any  of 
his  competitors;  but  the  economic  result  to  him 
and  to  his  creditors  would  not  be  materially  dif- 
ferent.     Both  lose  in  either  case. 

During  the  continuance  of  the  competitive 
struggle  between  rivals  who  eventually  enter  a 
Trust,  or  between  a  large  combination  and  its 
outside  rivals  who  are  being  gradually  forced  out 
of  business,  prices  to  consumers  are  likely  to 
range  low  for  a  considerable  period.  Under 
those  circumstances,  it  would  seem  that  the  con- 
sumers, for  the  time  being  at  least,  gain  more 
than  they  would  if  the  combination  were  earlier 
197 


The  Trust  Problem 

effected,  without  any  of  the  competitors  being 
driven  into  bankruptcy.  On  the  other  hand,  it 
must  not  be  forgotten  that  the  most  vigorous 
competition  is  almost  of  necessity  wasteful. 
While  on  the  one  hand  the  ablest  competitors 
rely  upon  excellence  for  their  success,  many 
others,  especially  in  the  last  stages  before  they 
yield,  resort  to  questionable  practices.  Cheap 
devices  are  sometimes  employed  which  are  likely 
to  result  in  imperfect  goods.  The  manufacture 
of  shoddy  instead  of  genuine  goods  is  some- 
times encouraged.  Desperate  means  to  secure  un- 
warranted credits  are  often  resorted  to;  and  the 
loss  from  these  sources,  as  well  as  the  direct 
loss  to  the  competitors  themselves,  is  likely  to 
more  than  offset  the  gain  to  the  consumers  from 
the  temporary  lowering  of  price  until  the  pro- 
ducers are,  many  of  them,  driven  into  bank- 
ruptcy. Besides  this,  the  combination  or  the 
surviving  competitor  is  likely,  when  the  fight  is 
won,  to  recoup  his  losses  by  demanding  an  in- 
demnity, not  from  the  vanquished  as  does  a  vic- 
torious nation,  for  that  would  be  a  vain  attempt, 
but  from  the  onlookers,  the  consumers.  The 
victor  will  ask,  too,  why  the  consumers  ought 
not  to  pay  the  indemnity.  They  have  been, 
198 


Political  and  Social  Effects 

through    low    prices,    the    beneficiaries    of   the 
conflict. 

A  reasonable  competition,  which  may  indeed 
force  out  one  by  one  individual  producers,  is 
clearly  a  healthful  influence  in  the  industrial 
community,  stimulating  the  better  ones  to  their 
best  efforts  and  raising  the  plane  of  efliciency. 
A  competition  of  this  nature  where,  one  by 
one,  the  weaker  competitors  drop  out  and  more 
eflScient  ones  come  into  the  industry-  from  time 
to  time  produces  no  crisis  in  that  industry.  On 
the  other  hand,  fierce  competition  among  rivals 
nearly  equal,  especially  when  large  amounts  of 
fixed  capital  are  involved,  not  merely  leads  to  the 
wastes  already  mentioned  of  ill-advised  methods 
and  measures,  and  losses  to  practically  all  of  the 
competitors  themselves,  but,  further,  leads  to 
general  depression  in  the  line  of  industry  in- 
volved. This  depression  will  lead  to  shifting  of 
capital  from  that  industry  into  other  lines  for 
which,  under  normal  conditions,  there  is  not  so 
great  need  in  the  community,  and  this,  in  itself, 
involves  another  industrial  loss.  For  these 
reasons  it  is  probable  that,  when  competition  is 
of  this  nature,  the  community  will  gain  from  the 
economic  viewpoint  by  a  combination  which 
199 


The  Trust  Problem 

stops  the  competition  before  it  has  reached  the 
ruinous  stage,  even  though  it  does  involve  for 
the  time  being  the  taking  of  some  plants  that 
are  comparatively  useless.  The  value  of  those 
plants  w^ill,  in  part  at  least,  be  saved  by  employ- 
ing them  in  other  lines  of  industry;  but  even 
where  the  loss  is  temporarily  a  total  one,  it  is 
likely  to  be  less  to  the  community  as  a  whole  as 
well  as  to  the  combination  itself  than  would  re- 
sult from  a  continuance  of  the  competition  to 
the  ruin  of  a  large  proportion  of  the  competi- 
tors. When  unfair  and  illegal  methods  of  com- 
petition are  employed,  such  as  the  use  of  dis- 
criminating rates  on  railroads,  or  any  dishonorable 
practices,  the  above  discussion  does  not  apply. 
Such  unfair  and  illegal  methods  put  the  question 
rather  into  the  field  of  criminal  law  or  social 
ethics.  Such  practices  are  under  no  circum- 
stances to  be  justified  or  defended. 

But  aside  from  the  effect  of  the  avoidance  of 
bankruptcy  on  the  part  of  numbers  in  the?  com- 
munity, it  is  often  urged,  and  that  with  much 
reason,  that  under  the  present  system  of  produc- 
tion on  a  large  scale,  an  individual  cannot  start 
independently  in  business,  unless  he  has  large  cap- 
ital or  is  in  some  way  personally  in  favor  with  the 
200 


Political  and  Social  Effects 

managers  of  the  larger  combinations.  We  have, 
therefore,  in  the  community,  it  is  said,  a  few 
magnates  in  productive  activity,  together  with 
multitudes  of  men  of  sound  judgment,  capable 
of  managing  large  enterprises  independently, 
who  are  reduced  to  the  position  of  employees — 
their  individuality  dwarfed,  the  development  of 
their  manhood  checked — all  this,  of  course,  to 
the  detriment  of  the  State. 

So  far  as  this  contention  is  true  (and  there  is 
much  truth  in  it),  it  is  perhaps  the  most  serious 
objection  that  can  be  made  to  the  present  sys- 
tem of  industrial  combination.  It  is  a  well- 
known  fact  that  the  high  officials  in  our  large 
insurance  companies,  in  our  railroad  systems, 
in  our  banks,  and  in  other  great  industrial 
enterprises,  do  give  opportunities  to  their  chil- 
dren and  their  friends  for  advancement  in  the 
direction  of  industrial  enterprises  which  could 
not  so  readily  at  least  be  secured  by  others. 
On  the  other  hand,  it  is  doubtless  true  that  if 
these  scions  of  the  industrial  magnates  show 
themselves  incompetent,  they  often  will  be  soon 
removed  from  their  positions,  or  dropped  into 
others  of  less  responsibility,  while  the  more 
capable  men  who   have   earned   their  positions 


The  Trust  Problem 

take  their  places.  If  such  a  course  is  not 
taken,  the  rivalry  of  old  or  new  capital  will  soon 
make  itself  felt.  The  savings  of  combination 
before  mentioned  will  be  more  than  offset  by 
the  losses  arising  from  incompetent  manage- 
ment, and  the  combination  will  fall  before  its 
smaller  rivals.  That  this  tendency  in  great  cor- 
porations toward  nepotism  is  strong  cannot  be 
doubted.  If  it  is  not  largely  overcome  through 
the  variety  of  interests  in  the  combination  itself, 
it  will  be  an  easy  matter  for  competition  to  hold 
its  own  in  another  short  generation. 

On  the  other  side,  however,  of  this  vital 
question,  there  are  one  or  two  matters  for  con- 
sideration. Many  men  are  now  trying  to  work 
independently  who  are  industrially  fit  only  to 
work  under  direction.  Any  careful  business 
man  or  observer  of  business  conditions  can  prob- 
ably name  among  his  acquaintances  men  who, 
good  workmen  perhaps,  are  fit  to  be  carpenters 
or  machinists  or  tailors  while  working  under  the 
direction  of  others,  but  who  wish  to  become 
and  at  times  do  become  contractors,  or  who 
open  stores  of  their  own  where  they  are  in  posi- 
tions of  financial  responsibility  as  heads  of  es- 
tablishments,  and  who,   whenever    they  secure 


Political  and  Social  Effects 

such  independent  positions,  invariably  bring  dis- 
aster upon  themselves  and  consequent  discom- 
fort to  their  families  and  loss  to  their  creditors. 
There  can  be  no  question  that,  from  the  strictly 
economic  point  of  view  at  least,  the  endeavor 
of  these  men  to  manage  a  business  indepen- 
dently, when  they  are  fit  only  to  be  workmen 
under  the  direction  of  others,  is  a  distinct  evil. 
Unless  the  waste  is  needed  to  enable  society  to 
select  the  business  leaders,  or  unless  men  who 
work  under  the  supervision  of  others  are  de- 
prived of  their  individuality,  the  loss  is  probably 
great  enough  to  overbalance  any  gain  which 
society  derives  from  their  attempts  at  managing 
a  business  for  which  they  are  not  fit. 

The  fact  should  not  be  overlooked  that  per- 
sons holding  subordinate  positions  are  usually 
granted  much  more  independence  in  work  than 
is  often  thought.  In  a  large  mercantile  or 
manufacturing  establishment  the  heads  of  de- 
partments ordinarily  have  full  discretion  in  the 
management  of  their  departments  as  long  as 
they  prove  successful.  Their  employers  look 
for  results.  They  are  given  general  directions 
in  order  that  they  may  fit  properly  into  their 
places  in  the  great  organization,  but  they  have 
203 


The  Trust   Problem 

full  discretion  as  regards  the  details  of  manage- 
ment, and  in  most  cases  have  as  great  opportu- 
nities for  showing  their  originality  and  for  test- 
ing their  powers  of  combination  and  organization 
as  it  would  be  possible  for  them  to  have  in 
managing  with  entire  independence  a  much 
smaller  business. 

When  a  number  of  small  railroads  are  brought 
together  into  a  large  system,  a  number  of  presi- 
dents of  railroads  lose  their  positions  as  presi- 
dents to  be  sure,  but  most  of  them  are  retained 
as  division  superintendents,  managing  the  same 
lines  of  road  which  before  they  managed  as 
presidents,  employing  for  the  most  part  the  same 
men,  receiving  as  good  pay,  and  being  given 
almost  if  not  quite  as  much  discretion  as  be- 
fore in  the  general  management  of  their  roads. 
It  is  true  that  they  must  report  to  a  superior, 
but  it  must  not  be  forgotten  that  as  presidents 
of  the  roads  they  also  reported  to  their  directors, 
and  that  their  work  was  subject  to  criticism 
even  before  the  combination  was  made. 

Indeed,  comparatively  few  men  in  important 
positions  at  the  present  time  are  entirely  without 
responsibility  to  others.  The  president  of  a 
railroad   reports  to  his  directors;   presidents  and 

2C4 


Political  and  Social  Effects 

professors  in  universities,  superintendents  of 
schools,  heads  of  practically  all  governmental  de- 
partments, are  subject  to  control,  and  more  or  less 
subject  to  direction.  The  art  of  managing  one's 
superiors  by  tact,  honesty,  and  excellence  in  serv- 
ice is  also  an  art  v^hich  develops  individuality,  per- 
haps to  even  as  great  an  extent  as  the  power  of 
acting  with  entire  independence,  owing  responsi- 
bility to  none,  excepting  perhaps  to  one's  credit- 
ors through  the  action  of  a  court.  A  wise  super- 
intendent of  schools,  to  show  his  power  over  his 
trustees,  said  to  a  friend  some  time  ago  that  they 
had  never  refused  any  request  that  he  had  made. 
His  thoughtful  friend  replied,  "Then  you  have 
been  exceedingly  wise  in  making  your  requests. " 
The  wise  executive  officer  has  little  difficulty 
with  his  superiors,  and  one  cannot  say  that  his 
individuality  is  in  any  way  weakened  by  the  fact 
that  he  is  held  responsible  by  those  superiors. 

The  weakness  of  most  employees  is,  that  they 
do  not  attempt  to  think  independently  in  their 
work,  and  that  they  make  no  effort  to  exercise 
original  power  in  the  performance  of  their  duties. 
There  are  few  positions  in  which  independent 
thought  (not,  of  course,  independent  action  with- 
out consultation)  will  not  count.  The  employer 
205 


The  Trust  Problem 

is  rare  who  will  not  trust  to  the  fullest  extent  any 
employee  who  shows  himself  fully  worthy  of 
confidence,  and  who  will  not  give  him  every  op- 
portunity to  develop  original  independent  power. 
Of  course  the  fact  is  not  overlooked  that  much 
work  is  largely  routine,  but  the  statements  are 
not  too  strong  when  one  speaks  of  opportunities 
for  independent  thought  under  the  competitive 
system  as  compared  with  those  under  the  combi- 
nations. Under  both,  the  great  majority  are 
not  expected  to  do  much  planning. 

As  the  system  of  industrial  combination  de- 
velops, it  seems  now  that  there  will  be  many  of 
these  positions  to  be  held  by  subordinate  super- 
intendents, which  will  be  equally  satisfactory 
from  the  financial  point  of  view  as  the  headship 
of  small  establishments,  and  which  in  most 
cases  will  afford  an  opportunity  for  enterprise 
and  independent  judgment  not  materially  less 
satisfactory,  while,  on  the  other  hand,  there 
will  be  created  some  positions  which  are  far 
greater  prizes  in  the  industrial  world  than  could 
ever  be  found  under  the  former  system  of  com- 
petition; and  yet  experience  has  not  so  far 
shown  that  favoritism  instead  of  excellent  work 
will  not  for  a  long  time  fill  many  of  these  places. 
206 


Political  and  Social  Effects 

To  those,  again,  who  are  of  the  opinion  that 
the  large  corporations  often  compel  their  em- 
ployees to  engage  in  practices  which  are  not  in 
accordance  with  the  strictest  morals — for  this 
complaint  is  sometimes  made — it  may  be  said 
that  one  is  as  seldom  urged  to  do  wrong  by  his 
employers  as  by  the  system  under  which  he  works. 
The  pressure  of  competition  against  the  indi- 
vidual producer  not  infrequently  leads  to  mis- 
representation regarding  credit  and  to  dishonor- 
able practices  in  methods  of  manufacture  and 
sale  of  goods.  How  many  of  our  taxpayers 
deal  fairly  and  openly  by  the  State  ?  The  sys- 
tem of  combination  may,  and  does  indeed  in 
many  cases,  lead  to  wrong  acts  on  the  part  of 
individuals.  If  our  eyes  are  open,  we  may  see 
that  it  is  questionable  whether  the  competitive 
system  leads  to  fewer.  There  is  much  to  be 
done  in  the  way  of  improving  our  standards  of 
business  morals ;  and  yet  it  is  probably  not  too 
much  to  say  that  on  the  whole,  whatever  the 
form  of  our  present  industrial  system,  they  are 
improving,  in  spite  of  the  many  evil  practices 
which  we  see.  A  high  standard  of  business 
character  probably  never  before  counted  for  so 
much  as  it  does  to-day. 

207 


The  Trust  Problem 

In  estimating  the  extent  of  both  the  econo- 
mic and  social  effects  of  industrial  combina- 
tions it  is  essential  to  note  that  their  activity 
is  limited  now  to  only  a  part  of  the  industrial 
field;  and  there  seems  no  likelihood  that  they 
will  in  this  era,  if  ever,  cover  it  entirely.  So  far, 
at  least,  they  have  proved  to  be  most  successful, 
with  apparently  a  degree  of  permanence,  only 
in  those  industries  which  require  much  capital 
for  successful  prosecution  ;  in  which  the  pro- 
duct is  uniform  in  its  nature  and  the  productive 
work  of  a  routine  character  ;  those  in  which 
the  product  is  bulky  and  there  is  a  wide  distri- 
bution of  freight  ;  or  those  in  which  other  some- 
what similar  characteristics  of  a  special  nature, 
such  as  very  expensive  advertising,  patents, 
etc.,  serve  to  encourage  the  combination  of 
capital. 

On  the  other  hand,  there  have  been  few 
combinations,  as  yet,  at  least,  in  agriculture. 
It  is  true  that  there  has  been  an  occasional  cor- 
ner of  wheat  in  some  one  market.  In  some  of 
our  larger  cities  there  have  been  combinations 
which  to  a  considerable  extent  have  controlled 
the  supply  of  milk  in  that  locality.  At  the 
present  time  there  is  a  large  combination  in  the 
208 


Political  and  Social  Effects 

manufacture  of  flour,  but  that  controls  oniv  a 
small  proportion  of  the  market,  and  is  even  now 
in  financial  straits.  Speaking  generally,  food 
products  of  all  kinds  that  come  from  the  farm 
and  from  the  small  producer  are  largely  beyond 
the  control  of  the  combinations,  though  the  pro- 
duction of  dressed  beef  seems  to  form  a  partial 
exception  in  the  opinion  of  some  observers. 

So,  again,  in  lines  of  manufacture  in  which  little 
capital  is  needed  to  start  a  successful  establish- 
ment, although  there  may  be  large  combinations, 
competition  against  them  is  so  easy  that  they  com- 
paratively seldom  secure  control  of  a  very  large 
proportion  of  the  market,  and  the  evils  from 
them  to  the  community  can  be  only  compara- 
tively small. 

When  goods  produced  are  of  such  a  nature 
th^*-  a  person  can  stamp  his  individuality  upon 
them — as  in  all  work  that  is  essentially  artistic, 
including  even  millinery  and  fashionable  tailor- 
ing— or  when  individual  work  is  required  in 
production,  it  seems  clear  as  yet  that  there 
can  be  no  monopoly  that  will  be  dangerous  to 
the  community,  or  any  monopoly  at  all,  with- 
out government  aid  and  support,  which  can  ma- 
terially affect  the  life  of  the  community.  The 
14  209 


The  Trust  Problem 

monopoly  of  genius  is  individual,  and  cannot  be 
effected  by  a  combination,  though  the  combina- 
tion may  sometimes  buy  its  service. 

Experience  only  can  show  the  limit  of  the 
field  of  combination.  There  can,  however,  be 
little  doubt,  on  the  basis  even  of  our  present  ex- 
perience, that  its  field  is  considerably  more  lim- 
ited than  has  been  thought  by  many  during  the 
past  decade,  and  that  there  still  remains  oppor- 
tunity to  find  his  place  for  each  one  who  is 
capable  of  independent  work.  On  the  other 
hand,  it  seems  equally  true  that,  whenever  the 
nature  of  the  industry  is  one  which  is  peculiarly 
adapted  for  organization  on  a  large  scale,  these 
peculiarities  will  so  strengthen  the  tendency 
toward  a  virtual  monopoly  that,  without  legal  aid 
and  without  special  discriminations  or  advantages 
being  granted  by  either  the  State  or  any  other 
influence,  a  combination  will  be  made,  and,  if 
shrewdly  managed,  can  and,  after  more  experi- 
ence in  this  line  has  been  gained,  probably  will 
practically  control  permanently  the  market,  un- 
less special  legal  efforts  better  directed  than  anv 
so  far  attempted  shall  prevent.  Even  when  the 
combinations  exist,  however,  the  social  effect, 
while  in  certain  directions  exceedingly  unpleasant, 

2IO 


Political  and  Social  Effects 

especially  to  those  who  are  in  competition  when 
the  organization  begins  its  work,  is  yet  net  all 
evil.  The  Trusts  afFord  greater  scope  for 
individual  power  and  independent  manage- 
ment than  has  been  ordinarily  supposed,  al- 
though they  are  practically  certain  to  bring 
most  positive  injuries  to  society,  unless  they 
can  be  brought,  better  than  they  now  are, 
under  social  control.  Although,  as  has  been 
shown,  their  power  is  much  more  limited  in 
the  long  run  by  business  conditions  than  has  been 
supposed  by  many,  and  although,  as  their  meth- 
ods become  better  known,  their  influence  will 
be  still  more  restricted  without  positive  action 
against  them,  their  power  over  prices  and  wages 
and  social  and  business  conditions  is  still  too 
great  to  be  left  in  the  hands  of  interested 
parties  without  legislative  check.  One  of  the 
leaders  of  a  great  combination  said  of  their 
industry  some  six  months  ago:  "We  control 
conditions."  Such  power  should  at  least  be  put 
under  supervision  of  those  who  represent  society. 


211 


CHAPTER  XI 

LEGISLATION 

Some  of  the  platforms  of  political  parties 
speak  of  the  Trusts  as  if  they  were  unmitigated 
evils.  Others  attempt  to  distinguish  between 
good  Trusts  and  bad  Trusts.  If  the  opinions 
expressed  in  the  preceding  pages  are  true,  it  is 
probable  that  few  Trusts  are  entirely  evil,  and 
that  none  are  all  good.  We  need  rather  to 
recognize  that  from  the  viewpoint  of  social 
prosperity  the  modern  system  of  industrial  com- 
bination has  good  qualities  and  bad  ones.  Be- 
fore undertaking  a  discussion  of  legislation  that 
may  serve  as  a  proper  remedy  for  the  evils  of  in- 
dustrial combinations,  it  will  be  well,  therefore, 
to  summarize  their  good  and  their  evil  qualities. 

We  may  recognize  as  good  qualities  the  sav- 
ing of  the  wastes  of  competition.  These  wastes 
are  many  and  often  great.  The  combination 
saves  a  waste  of  capital  by  the  prompt  abandon- 
ment of  poor  or  badly  situated  plants  and  the 
concentration  of  energy  in  the  best  ones  which 

2X2 


Legislation 


-o 


can  be  run  to  their  full  capacity  and  all  of  the 
time  ;  by  making  the  best  possible  use  of  waste 
material  through  the  production  of  by-products ; 
by  pushing,  often  at  much  expense,  markets 
into  new  fields,  both  at  home  and  abroad, 
through  the  employment  of  the  ablest  men 
and  the  best  advertising  devices,  which  could 
not  so  well  be  afforded  by  smaller  institutions. 
There  is  great  saving  of  energy  in  the  elimina- 
tion of  cross  freights  ;  in  the  best  possible  divi- 
sion of  labor,  and  the  organization  of  correlated 
branches  to  the  best  adv^antage  ;  in  the  securing 
of  the  best  ability  to  manage  industries ;  in 
making  the  best  distribution  of  managing  ability, 
giving  to  each  person  the  work  for  which  he  is 
best  adapted  ;  in  furnishing  opportunities  fit 
for  the  employment  of  the  greatest  capacity 
in  all  fields  of  business  management,  opportu- 
nities which  could  not  be  furnished  without  tlie 
enormous  power  that  comes  from  the  concen- 
tration of  capital. 

Enormous  as  these  benefits  to  society  may  be 
from  this  better  organization  of  capital  under 
the  new  regime,  no  less  pronounced  are  the 
evils,  (i)  Investors  of  capital  are  often  griev- 
ously wronged  through  concealment  of  facts 
213 


The  Trust  Problem 

and  deception  practised  by  promoters  and  direc- 
tors at  the  time  an  industry  is  organized,  and, 
later,  through  misrepresentation  of  the  condition 
of  business  and  of  the  methods  in  which  a  busi- 
ness is  carried  on.  The  g  latest  evil  at  the 
time  of  the  organization  or  extension  of  the 
business  probably  comes  from  stock  watering,  a 
process  which  could  not  profitably  be  carried  on 
without  concealment  and  deception. 

(2)  A  second  class  of  persons  injured  is  that 
of  the  stockholders.  Directors  not  infrequently 
manage  the  business  in  their  own  interests,  re- 
gardless of  those  of  the  stockholders.  At  times 
it  is  really  made  less  profitable,  or  is  so  managed 
as  apparently  to  be  less  profitable,  in  order  to 
depress  the  stock  on  the  market  and  to  enable  the 
directors  through  gambling  speculations  to  reap 
large  profits.  Or,  again,  if  the  business  itself 
is  Successfully  managed,  its  methods  of  manage- 
ment may  be  kept  secret,  and  the  directors, 
through  their  exclusive  knowledge,  will  reap 
large  profits  by  buying  or  selling  at  the  expense 
of  their  fellow  stockholders,  who,  from  the 
nature  of  the  case,  cannot  be  so  well  informed 
as  they. 

(3)  Persons,   not   members  of  a  corporation, 

214 


Legislation 

may  be  injured  as  consumers  by  high  prices, 
which  can  be  kept  high,  provided  the  com- 
bination can  secure  monopolistic  power.  The 
temptation  to  keep  prices  above  former  competi- 
tive rates  is,  of  course,  greatly  increased  when  the 
corporation  has  issued  large  amounts  of  watered 
stock. 

(4)  The  producers  of  raw  material  may  be 
injured  by  low  prices,  which  the  combination, 
by  virtue  of  its  being  the  largest,  if  not  almost 
the  sole  buyer,  can  compel  the  producer  to  ac- 
cept. 

(5)  The  combination  may  so  increase  its 
power  as  to  injure  the  wage  earners  by  compel- 
ling them  to  accept  lower  wages  or  to  work 
under  less  favorable  conditions  than  would  be 
granted  by  competing  concerns.  So,  too,  the 
power  exercised,  apparently  arbitrarily  at  times, 
of  closing  part  of  the  plants  to  avert  a  strike,  or 
even  to  afFect  the  stock  market,  is  dangerous. 

(6)  It  may  happen  at  times  that  the  larger 
organizations  will  exert  so  powerful  an  influence 
on  our  political  organizations  that  the  purpose 
of  the  State  will  be  directed  away  from  the 
common  weal. 

(7)  The  mental   tone  of  the  business  com' 

215 


The  Trust  Problem 

munity  may  be  lowered  by  depriving  individuals 
of  the  privilege  and  of  the  power  to  enter 
independently  into  business  as  readily  as  could 
be  done  were  capital  less  concentrated.  It 
should  be  borne  in  mind  that  this  evil,  while  it 
exists,  is  offset,  in  part,  by  some  of  the  ad- 
vantages mentioned  above. 

(8)  And,  again,  the  moral  tone  of  business 
may  be  lowered.  If  the  larger  organizations 
employ  unscrupulous  methods  in  dealing  with 
competitors,  or  customers,  or  laborers,  their 
greater  power,  especially  if  it  is  great  enough 
to  give  them  a  partial  or  complete  monop- 
oly for  a  time,  will  have  a  much  more  detri- 
mental influence  than  the  same  acts  of  an  in- 
dividual, both  on  account  of  the  range  of  its 
application  and  of  the  more  powerful  influence 
of  its  example.  Here  again  it  may  be  well  to 
state  that  there  is  no  reason  to  believe  that  in- 
dividuals managing  these  large  combinations  of 
capital  are  worse  morally,  or  have  more  evil  in- 
tentions as  regards  competitors  or  the  public 
than  managers  of  small  establishments.  Both 
classes  look  carefully  after  their  own  interests, 
and  feel  themselves  justified  in  so  doing  ;  but 
the  power  of  the  manager  of  the  large  corpora- 
216 


Legislation 

tion  is  greater,  and  the  injuries,  both  economic 
and  moral,  to  the  public  from  his  selfish  acts 
may  be  much  more  severe. 

Many  of  those  who  are  most  inclined  toward 
the  doctrine  of  freedom  in  industry  think  that 
the  wisest  policy  in  dealing  with  the  combina- 
tions is  the  let  alone  policy,  except  so  far  as 
advantages  are  secured  by  the  combinations 
through  certain  restrictive  provisions  in  our  laws, 
such  as  tariffs  or  patents.  Such  advocates,  of 
course,  advise  the  removal  of  these  discriminat- 
ing favors.  Some  of  those  persons,  on  the  other 
hand,  who  are  most  impressed  with  the  evils  of 
the  combinations,  have  advocated  their  absolute 
destruction  by  legislative  measures. 

Twenty-seven  States  and  Territories  have 
passed  laws  intended  to  destroy  such  industrial 
combinations  as  now  exist,  and  to  prevent  the 
formation  of  others.  Fifteen  States  have  simi- 
lar provisions  in  their  constitutions,  although 
four  of  these  have  not  enacted  statutory  measures 
to  carry  out  these  constitutional  provisions. 
Besides  this  legislation  on  the  part  of  our  States, 
we  have  a  Federal  Anti-Trust  Act  (the  so-called 
Sherman  Act  of  1890);  and  certain  provisions  of 
the  Interstate  Commerce  Law  of  1887,  by 
217 


The  Trust  Problem 

checking  discriminations,  work  against  industrial 
combinations.  A  study  of  these  statutes  and  of 
the  decisions  of  our  courts  of  last  resort  which 
have  been  mude  under  them,  will  show  that  they 
have  had  comparatively  little,  practically  no 
effect,  as  regards  the  trend  of  our  industrial 
development. 

It  is  true  that  throu2;h  these  acts  of  leg;islatures 
and  courts  the  form  of  combination  has  varied 
more  or  less.  Through  the  influence  of  these  stat- 
utes also  the  tenets  of  the  common  law  regarding 
monopoly  and  restraint  of  trade  have  been  slightly 
changed.  Under  the  common  law  restraint  of 
trade  needed  to  be  unreasonable  in  order  to  be  con- 
demned ;  under  some  of  these  statutes  all  restraint 
of  trade,  whether  reasonable  or  unreasonable,  is 
condemned.  Some  of  the  statutes  have  gone  to 
such  extremes  that,  had  they  been  literally  inter- 
preted, they  would  practically  have  stopped  many 
of  the  ordinary'  agreements  in  business  which 
are  necessary  for  its  successful  prosecution,  and 
which  are  without  any  intention  or  any  effect  of 
monopoly  or  of  other  practice  which  would  tend 
in  any  way  to  the  injury  of  the  community.  In 
the  interpretation  of  the  statutes,  however,  our 
courts  have  regularly  been  rather  more  conserva- 
218 


Legislation 

tive  than  the  lawmakers,  and  have  practically 
insisted  that  there  should  be  monopoly,  either  in 
intent  or  to  a  certain  degree  at  least  in  fact,  be- 
fore an  industrial  organization  should  be  held 
illegal.  It  may  be  said  therefore  that,  so  far 
as  State  legislation  is  concerned  at  least,  this 
destructive  tendency  in  legislation  has  perhaps 
already  accomplished  its  utmost,  unless  more 
power  be  granted  the  States.  If  Congress 
were  to  give  to  the  States  control  over  interstate 
traffic  carried  on  within  their  borders,  as  has  been 
advocated,  possibly  still  more  might  be  done  in 
that  direction. 

So  far  as  the  industrial  combinations  are  the 
result  of  special  advantages  granted  to  indi- 
viduals or  to  corporations,  whether  by  the  State 
or  by  others,  it  is  probable  that  in  most  in- 
stances the  evil  effects  would  be  lessened,  if  not 
even  completely  removed,  by  the  removal  of 
such  discriminating  favors.  If  railroads  are 
giving  special  rates  to  large  shippers,  and  are 
thus  building  up  monopolistic  organizations, 
such  discriminations,  which  are  illegal  now, 
should  be  stopped  by  the  application  of  more 
effective  remedies.  It  is  probable  that  the  hands 
of  the  Interstate  Commerce  Commission  can  be 
219 


The  Trust  Problem    . 

by  law  materially  strengthened,  and  thereby  this 
evil  materially  lessened.  If  enacted  into  law  by 
Congress,  the  recommendations  of  the  Indus- 
trial Commission — that  the  Interstate  Commerce 
Commission  be  given  the  power  of  audit  of  ac- 
counts of  railroads,  and  that  its  decisions  regard- 
ing freight  rates  go  into  force  and  remain  in  force 
until  reversed  by  a  decree  of  court  on  the  appeal 
of  the  shipper,  as  well  as  the  still  further  sug- 
gestion that  penalties  be  fines  against  the  cor- 
poration and  not  imprisonment  of  the  official — it 
is  probable,  would  materially  lessen,  at  any  rate, 
this  evil  of  freight  discriminations  in  favor  of 
the  combinations.  The  bill  lately  passed  by 
the  House  of  Representatives  looks  somewhat 
in  the  same  direction,  but  possibly  attempts  to 
go  further  than  is  wise.  It  is  well  to  be  tem- 
perate in  legislation  which  affects  profoundly  the 
whole  industrial  structure,  and  to  ''make  haste 
slowly."  The  end  will  often  be'  sooner 
reached. 

Likewise,  the  monopoly  that  comes  from  the 
holding  of  patents,  as  in  the  case  of  wire  fencmg, 
or  as  has  been  the  case  with  the  telephone,  can 
perhaps  be  removed  by  amendments  to  our  patent 
laws.      It  has  been  suggested  that  instead  of  our 


Legislation 

granting  a  legal  monopoly  to  an  inventor,  the 
production  of  the  invention  should  be  left  free 
to  all  who  stand  ready  to  pay  him  a  royalty  fixed 
by  the  law.  He  would  thus  be  made  surer  of 
his  reward,  v/hile  the  public  v/ould  be  benefited 
by  cheaper  patented  goods  instead  of  injured  by 
the  patent  monopoly,  as  seems  now  at  times  to 
be  the  case.  The  details  of  such  an  amendment 
to  the  patent  law  may  well  afFord  a  subject  for 
careful  study. 

So  far  as  the  remedy  of  a  removal  or  lessening 
of  the  tariff  on  products  which  are  largely  con- 
trolled by  industrial  combinations  is  concerned, 
that  has  already  been  discussed  in  Chapter  II. 
It  is  in  all  probability  true  that  by  such  removal 
of  the  tariff  the  evil  effects  of  the  higher  price 
would,  for  the  time  being  at  any  rate,  be  mate- 
rially lessened,  and  the  suggestion  of  this  remedy 
is  certainly  good,  provided  the  remedy  were  ap- 
plied with  reasonable  discretion  and  a  reasonable 
judgment  regarding  present  industrial  conditions. 
But,  on  the  other  hand,  as  has  been  said  before,  it 
must  be  perfectly  evident  that  the  removal  of  the 
tariff  would  not  destroy  in  this  country  an 
industrial  combination  without  first  destroying 
its    surviving   rivals — while  it   might  also   very 


The  Trust  Problem 

readily  be  In  many  cases  the  one  incentive  needed 
toward  bringing  about  a  world-wide  combination 
against  which  tariffs  could  not  avail. 

Amendments  to  the  corporation  laws  which 
would  hold  officers  and  directors  and  promoters 
to  more  direct  responsibility  would  be  service- 
able, and  should  be  especially  directed  to  the 
prevention  of  their  activity  in  the  stock  market. 
That  end  can  probably  be  attained  by  the  next 
remedy  suggested. 

A  remedy  which  would  strike  directly  at  the 
most  crying  evils  of  the  industrial  combinations 
is  publicity,  which  has  been  so  often  advocated 
during  the  past  year.  Publicity  regarding  the 
organization  of  a  business,  which  should  compel 
promoters  to  show  clearly  to  investors  the  basis 
on  which  a  large  corporation  or  a  combination 
of  corporations  is  organized,  would  certainly  put 
careful  investors  into  a  position  to  protect  them- 
selves. Of  course  there  would  still  be  foolish 
people  who  would  buy  gambling  stocks,  credu- 
lous ones  who,  without  investigation,  would  be- 
lieve any  story  told  in  the  papers.  The  State 
cannot  well  protect  such,  without  destroying 
personal  freedom.  It  is  doing  enough  if  it  en- 
ables a  careful  man  to  protect  himself. 


Legislation 

More  frequent  reports  regarding  the  condition 
of  a  business,  carefully  audited  by  persons  work- 
ing in  the  interests  of  the  stockholders,  and 
quite  possibly  under  the  supervision  of  the  gov- 
ernment, as  has  been  lately  advocated  by  Mr. 
Bird  S.  Coler,  the  Comptroller  of  the  City  of 
New  York,*  will  still  further  protect  stock- 
holders against  the  corrupt  practices  of  direc- 
tors. Excellent,  however,  as  is  the  general 
purpose  of  Mr.  Coler' s  plan,  and  sound  as  are 
many  of  his  arguments,  he  goes  so  far  as,  under 
our  present  conditions,  to  run  the  risk  of  ex- 
posing every  sound  conservative  business  to 
the  danger  of  blackmail,  and  in  one  or  two  par- 
ticulars at  least  to  hamper  unnecessarily  a  sound 
and  beneficial  business.  There  is  decided  ob- 
jection to  putting  too  much  power  in  the  hands 
of  government  inspectors  with  discretion,  when 
the  same  end  of  government  enforcement  of 
publicity  can  be  better  accomplished  in  other 
ways.  It  is  of  course  possible  that  if  Mr. 
Coler  were  to  put  his  views  into  a  definite  bill, 
some  changes  in  them  would  be  made,  or  his 
opinion  would  be  more  clearly  understood. 

The  publicity  also  which  should  show  with  a 
*  See  Appendix  G. 
223 


The  Trust  Problem 

reasonable  degree  of  detail  the  profits  of  the  larger 
combinations  would,  in  case  of  the  abuse  of  their 
power,  so  stimulate  competition  against  them, 
either  actually  or  potentially,  that  consumers 
would  to  a  great  degree  be  protected  against 
excessive  increase  in  prices. 

At  the  same  time  the  laborer,  through  his  ful- 
ness of  knowledge  regarding  the  financial  condi- 
tion of  his  employer,  would  be  enabled  to  make 
his  demands  at  times  when  it  would  be  wise  to 
grant  them,  and  would  avoid  the  mistakes  too 
frequent  at  present,  of  striking  on  a  falling 
market  when  his  employer's  losses  are  such  that 
he  stands  ready  to  close  his  establishment  if  any 
excuse  is  offered  him. 

The  degree  of  publicity  needed  and  the 
method  of  its  enforcement  as  regarded  by  others 
who  recommend  publicity,  can  perhaps  be  shown 
best  by  the  study  of  the  bill  drawn  for  Governor 
Roosevelt,  The  New  York  Business  Companies' 
Act:    1900.* 

It  is  interesting  to  note,  too,  that  Mr.  Bryan, 

while    advocating   national   regulation,   has  also 

publicity  in  mind  as  a  chief  remedy  for  the  two 

great  evils  of   stock   watering    and    monopoly. 

*  See  Appendix  D. 


Legislation 

A  national  government  license,  he  thinks,  should 
be  secured,  before  a  corporation  should  be  allowed 
to  do  business  outside  the  State  of  its  origin.* 

This  is  not  the  place  to  go  into  a  detailed 
discussion  of  the  legal  questions  regarding  the 
scope  of  federal  legislation  as  compared  with 
that  of  the  States,  nor  to  discuss  the  amend- 
ment to  the  Constitution  of  the  United  States 
proposed  by  the  Judiciary  Committee  of  the 
House  of  Representatives  at  the  last  session  of 
Congress.  It  is  purely  a  legal  question  as  to 
whether  publicity  can  be  enforced  at  present  by 
the  federal  courts  or  under  a  law  passed  by 
Congress  without  an  amendment  to  the  Consti- 
tution. 

It  may  be  said,  however,  that  if  three  or  four 
of  our  largest  States,  such  as  New  York,  Penn- 
sylvania, Illinois,  and  Massachusetts,  were  to 
enact  laws  along  somewhat  similar  lines,  which 
should  afford  the  greatest  facilities  to  corpora- 
tions organized  honestly  for  the  purpose  of  con- 
ducting a  legitimate  business,  while  at  the  same 
time  they  should  compel  a  reasonable  degree  of 
publicity  regarding  both  the  organization  and 
the  management,  much  could  be  accomplished, 
*  See  Appendix  E. 
15  225 


The  Trust  Problem 

even  though  the  legislation  were  not  uniform 
in  all  the  States.  Our  States  can  impose  con- 
ditions upon  which  they  will  permit  foreign 
corporations  to  do  business  within  their  borders, 
except  so  far  as  that  business  is  of  an  interstate 
nature.  A  few  of  our  larger  States  so  uniting, 
would  control  so  large  a  part  of  the  business  of 
the  nation  that,  if  their  provisions  regarding  the 
legitimate  employment  of  honest  capital  were 
liberal  and  fair,  corporations  organized  with 
speculative  ends  in  view  would  be  so  discredited 
that  the  larger  part  of  their  evils  would  be  swept 
away. 

Through  this  publicity  thus  secured,  we 
might  well  secure  other  information  which 
would  lead  as  time  went  on  to  regulation  more 
definite  and  more  rigorous.  But  for  the  time 
at  least,  it  is  probably  unwise  to  enter  upon  any 
measure  beyond  those  mentioned,  until  our  in- 
formation is  somewhat  more  complete.  There 
remains  beyond  doubt,  as  soon  as  our  knowledge 
is  sufficiently  definite  regarding  the  workings  of 
these  organizations,  a  taxing  power  which  can 
compel,  and  that  readily,  a  distribution  of  any 
surplus  profits  to  the  community.  It  is  prob- 
able, however,  that  before  this  remedy  would 
226 


Legislation 

need  to  be  applied  to  any  rigorous  degree,  this 
same  distribution,  as  soon  as  the  conditions 
were  fully  known,  would  be  made  more  equit- 
ably and  more  justly  under  the  simple  pressure 
of  public  opinion,  through  lessening  prices  and 
higher  wages.  That  result,  however,  desirable 
as  it  is,  and  one  upon  which  our  eyes  should  be 
fixed  as  the  ultimate  goal,  is  one  which  can  be 
secured  by  legislation  without  grave  harm  to  our 
delicate  industrial  machinery  only  through  the 
knowledge  that  comes  from  a  wider  and  longer 
experience. 


227 


CHAPTER   XII 

INDUSTRIAL    COMBINATIONS   IN    EUROPE  * 

The  Study  of  industrial  combinations  under 
the  differing  conditions  in  Europe  serves  to  con- 
firm to  a  material  extent  the  conclusions  reached 
in  preceding  chapters.  It  is  probable  that  in 
Germany  and  Austria,  if  not  even  in  England, 
industrial  combinations  cover  as  many  different 
industries,  and  control  as  large  a  portion  of  the 
manufactures  in  each  industry  as  Is  the  case  in 
the  United  States. 

On  the  other  hand,  In  England  only  is  the 
form  of  combination  generally  that  of  a  single 
corporation  owning  many  separate  establish- 
ments. In  all  of  these  countries  are  found 
numerous  combinations  of  the  primitive  form 
mentioned  in  the  earlier  chapters,  which  are 
merely  agreements — often  local  in  their  nature — 
among  different  manufacturers  or  dealers  to  limit 

*  Material  for  this  chapter  was  gathered  primarily  for 
the  United  States  Industrial  Commission  in  Europe  in  the 
summer  of  1900.    Printed  material  has  been  collected  since. 
228 


Industrial  Combinations  in  Europe 

the  amount  of  their  output  or  to  maintain  prices 
at  a  rate  agreed  upon.  But  in  all  of  the  coun- 
tries also,  aside  from  this  loose  and  often  merely- 
local  arrangement,  there  are  large  combinations 
controlling  ninety  per  cent,  or  more  of  the  entire 
output  of  a  single  product  within  the  country 
named,  in  many  cases  having  an  international 
influence. 

The  causes  of  combinations  as  given  by  those 
u^ho  have  been  most  active  in  forming  them 
and  in  managing  their  affairs  are  substantially 
the  same  everywhere  as  in  the  United  States, 
showing  that  the  principle  of  combination  itself 
is  one  which  seems  normally  fitted  to  our 
present  stage  of  industrial  development  and  one 
which  is  not  dependent  upon  mere  local  condi- 
tions or  legislation. 

The  desire  to  avoid  ruinous  competition  is 
practically  always  mentioned  as  the  chief  cause. 
With  that  are  associated  the  various  savings 
spoken  of  in  Chapter  II.,  although  naturally 
some  of  these  savings  are  dependent  to  a  con- 
siderable extent  upon  the  form  of  combination 
itself,  and  therefore  in  many  individual  cases 
are  not  found.  Speaking  generally,  however, 
the  opportunity  of  avoiding  cross  freights,  of 
229 


The  Trust  Problem 

running  plants  to  full  capacity  and  on  full  time, 
of  special  adaptation  of  machinery,  and  special- 
ization of  different  plants  upon  special  products, 
with  the  corresponding  specialization  of  indi- 
vidual skill  on  the  part  of  the  managers  and 
workmen,  the  common  use  of  patents,  brands, 
etc.,  the  savings  in  advertising,  the  lessening  of 
the  cost  of  superintendence,  the  possibility  at 
times  of  saving  of  labor,  particularly  of  travel- 
ling men,  and  the  other  savings  enumerated,  are 
some  of  them  found  practically  everywhere,  and 
practically  all  of  them  are  found  somewhere  in 
studying  the  different  combinations. 

Certain  local  circumstances  in  Europe,  rarely 
found  in  the  United  States,  are  met  with  which 
tend  somewhat  to  check  their  growth.  For 
example,  in  most  of  the  older  countries,  a  manu- 
facturing firm  is  frequently  found  which  has 
been  established  for  several  generations,  possibly 
even  for  centuries.  The  members  of  the  family 
naturally  take  great  pride  in  their  business,  and 
the  business  itself  becomes  to  a  considerable 
extent  hereditary.  Often,  beyond  doubt, 
through  this  business  inbreeding,  careless  habits 
and  wasteful  methods  creep  in,  and  at  times  the 
sons  or  lineal  descendants  of  the  able  founders  of 
230 


Industrial  Combinations  in  Europe 

the  business  prove  to  have  much  less  business 
skill  than  their  predecessors.  In  more  than  one 
instance  men  have  hesitated  to  enter  combina- 
tions, because,  as  they  said,  they  had  hoped  to 
hand  their  business  down  to  their  sons,  but  they 
knew  that  if  a  great  combination  was  formed, 
the  officers  of  which  must  be  selected  on  the 
ground  of  business  capacity,  their  sons  must 
either  withdraw  or  take  a  subordinate  place. 
From  the  point  of  view  of  economic  efficiency, 
it  is  doubtless  desirable  in  many  of  these  cases 
for  the  firm  to  be  replaced  by  the  combination. 
Some  of  these  same  influences  too,  taken 
with  others,  such  as  the  corporation  laws,  the 
attitude  of  the  courts,  and  the  state  of  public 
opinion,  while  not  lessening  materially  the  drift 
toward  combination,  have  nevertheless  affiscted 
decidedly  the  form  which  the  combinations  have 
assumed.  Not  having  yet  felt  the  pressure  of 
competition  to  quite  so  great  a  degree  perhaps,  as 
have  manufacturers  in  the  United  States  in  many 
instances,  and  not  having  so  often  the  habit  of 
conducting  various  kinds  of  enterprises  jointly, 
and,  in  consequence,  of  submitting  one's  indi- 
vidual will  In  many  matters  to  what  seems  to 
be  the  joint  interest  of  a  group,  the  individual 
231 


The  Trust  Problem 

manufacturers  in  nearly  all  of  Europe  seem  to 
struggle  more  vigorously  against  selling  out  or 
against  subordinating  themselves  to  the  direction 
of  a  single  managing  head  than  do  the  indepen- 
dent manufacturers  in  the  United  States.  One 
can  hardly  ascribe  this  difference  to  a  greater  spirit 
of  independence,  in  the  proper  sense  of  that 
word,  than  exists  in  the  United  States,  as  is  so 
often  claimed  by  the  foreigners  themselves;  but 
a  less  degree  of  willingness  to  abide  by  the  deci- 
sion of  a  majority  and  to  cast  one's  own  lot  in 
with  that  of  others  seems  to  be  clearly  notice- 
able. 

The  law  has  apparently  also  in  all  of  the 
countries,  although,  as  will  be  seen  later,  there 
are  some  apparent  exceptions,  been  ready  to 
uphold  contracts  to  limit  the  amount  of  the 
output,  or  even  to  sell  goods  at  a  certain  fixed 
rate — contracts  which  in  the  United  States 
would  be  held  contrary  to  many  of  our  newer 
anti-Trust  laws,  and  which  even  would,  in  cer- 
tain instances  at  least,  come  under  the  common 
law  principle  forbiding  contracts  in  restraint  of 
trade.  It  has  not  been  necessary,  therefore,  in 
order  to  bring  about  a  uniform  management,  that 
the  separate  establishments  sell  out  completely; 


Industrial  Combinations  in  Europe 

it  suffices  often  if  they  agree  one  with  the  other 
upon  the  percentage  of  the  entire  output  that 
will  be  produced  by  each  member  of  the  com- 
bination, and  then  put  into  the  hands  of  a  com- 
mon selling  bureau  organized  in  the  interests  of 
all  and  with  its  managers  elected  by  them  all, 
the  selling  of  their  entire  product,  as  well  as  the 
allotment  to  each  of  his  quota  of  production 
whenever  a  change  in  circumstances  arises. 

This  is  the  form  of  combination  most  gener- 
ally found  in  Europe — a  central  selling  bureau, 
to  which  is  given  the  power  also  of  fixing  the 
output,  while  in  the  organization  agreement 
itself  the  proportional  share  of  each  member  in 
the  entire  output  is  laid  down. 

Often  with  this  general  agreement,  there  are 
certain  local  peculiarities  or  variations  depen- 
dent upon  the  nature  of  the  combination  itself. 
For  example,  in  the  case  of  the  coal  and  iron 
syndicates,  ordinarily,  while  the  entire  product 
offered  for  sale  within  the  home  country  must 
go  through  the  hands  of  the  bureau,  reservation 
to  the  producer  is  regularly  made  of  the  material 
or  fuel  used  within  the  establishment  itself.  In 
the  Austrian  iron  combination  each  member 
sells  his  own  product. 

253 


The  Trust  Problem 

In  the  case  of  the  powerful  sugar  combina- 
tions of  Austria  and  Germany,  the  refiners  of 
sugar  guarantee  to  the  producers  of  the  raw- 
sugar  a  certain  fixed  minimum  price.  In  case 
the  price  fixed  in  the  world's  market,  as  repre- 
sented by  the  market  at  Magdeburg  in  Germany, 
or  Vienna  in  Austria,  is  below  this  minimum 
price,  the  refiners  must  make  up  the  difference, 
and  recoup  themselves  by  higher  prices  to  the 
consumers  for  the  refined  product.  Such  a 
plan  of  working  has  for  many  years  proved 
eminently  successful  in  Austria,  and  there 
seems  no  reason  to  doubt  that  a  similar  result 
will  be  reached  in  Germany. 

Speaking  generally,  even  in  the  case  of  the 
greater  combinations  in  England,  which  have 
assumed  the  corporate  form,  it  is  probable  that 
to  the  managers  of  the  individual  plants  a  some- 
what greater  degree  of  independence  is  per- 
mitted than  is  the  case  in  the  United  States. 
The  managing  directors  of  the  Bradford  Dyers' 
Association  say  that  in  that  business,  where  in- 
dividual taste  is  of  so  great  importance,  they 
have  found  it  wiser  to  encourage  each  individual 
superintendent  to  increase  his  sales  as  much  as 
possible  by  exercising  his  inventive  skill  in  pro- 
234 


Industrial  Combinations  in  Europe 

ducing  a  special  quality  of  goods.  They  stimu- 
late him  still  further  to  good  work  by  paying 
only  a  small  fixed  salary  and  then  making  a 
large  percentage  of  his  income  dependent  upon 
the  profits  of  his  separate  plant.  A  rigid  system 
of  comparative  book-keeping  among  the  differ- 
ent establishments  is  maintained,  so  that  the 
managing  directors  and  the  individual  superin- 
tendents are  able  to  affect  work  to  a  material 
extent  through  this  stimulus  of  rivalry. 

In  Austria  and  Germany  there  are  several 
combinations,  although  they  are  not  among  the 
largest,  which  have  taken  the  form  of  corpora- 
tions, such  as  the  brush  manufacturers  of  Niirn- 
berg  and  the  soda  water  manufacturers  of  Vienna, 
but  these  are  exceptional.  In  England,  on  the 
other  hand,  the  greatest  of  the  combinations 
have  taken  this  form,  and  their  reasons  for 
doing  so  are  substantially  those  given  in  the 
United  States — that  thereby  they  can  make 
more  savings,  and  they  can  enter  thus  more 
effectivelv  into  the  world's    markets. 

V^ery  peculiar  in  its  form,  and  so  far  as  I  am 
aware,  entirely  unique  in  its  methods  and  re- 
sults, is  the  brass  bedstead  combination  in 
Birmingham,  England,  organised  and  largely 
235 


The  Trust  Problem 

managed  by  Mr.  E.  J.  Smith.  As  a  result  of 
much  observation,  Mr.  Smith  had  reached  the 
conclusion  that  ruinous  competition  was  often 
the  result  of  iq-norance  and  careless  management 
on  the  part  of  some  competing  establishments, 
they  never  having  taken  the  pains  to  figure 
accurately  their  exact  costs  of  production.  He 
believes  that  it  is  not  merely  good  business 
policy  to  get  fair  profits,  but  that  it  is  also  im- 
moral under  ordinary  circumstances  for  a  manu- 
facturer to  sell  his  goods  belov/  cost  with  the 
certainty  of  ultimate  ruin  before  him  if  he  con- 
tinues the  practice.  He  likewise  is  of  the 
opinion  that  the  laborers  should  ha\'e  an  active 
interest  in  the  business  and  should  prosper  with 
the  prosperity  of  their  employer.  Acting  on 
these  principles,  he  has  organized  several  com- 
binations on  substantially  the  following  plan. 

In  the  first  place,  the  laborers  of  all  the  plants 
entering  the  combination  must  be  organized  into 
a  union  so  that  they  can  act  as  a  unit  as  well  as 
do  their  employers.  In  the  second  place,  each 
establishment  must  make  a  ver/  accurate  state- 
ment of  its  actual  cost  of  production,  including 
interest  on  capital  invested,  a  fair  salary  to  the 
manager,  even  though  he  be  the  owner,  a  rea- 
256 


Industrial  Combinations  in  Europe 

sonable  amount  for  depreciation  of  plant,  and 
even  at  times  a  certain  allowance  to  the  em- 
ployer above  his  actual  salary  for  the  added  ex- 
pense to  which  he  is  put  by  virtue  of  his  higher 
social  station.  On  the  basis  of  these  returns, 
then,  a  minimum  cost  for  the  product  is  fixed 
for  all  of  the  establishments,  and  no  one  is  per- 
mitted to  sell  below  a  certain  percentage  above 
that  rate.  Each  employer  manages  his  own 
establishment,  sells  his  own  goods,  acts  entirely 
independently  in  every  way,  with  the  exception 
that  he  must  not  cut  his  price  below  a  certain 
percentage  of  profit  on  this  agreed-upon  mini- 
mum cost.  If,  with  the  market  rate  thus  fixed 
substantially  by  the  cost  of  production  in  the 
poorer  plants,  one  can  make  his  products  cheaper 
owing  to  greater  skill,  his  profits  will  naturally 
be  larger. 

The  laborers  benefit  also  from  the  combina- 
tion in  like  proportion,  inasmuch  as  starting 
with  agreed-upon  normal  wages  on  the  basis 
of  a  minimum  price  and  normal  profits,  they 
receive  a  bonus  of  an  increase  of  wages  in  pro- 
portion to  every  increase  in  profits  made  by 
their  employer.  The  workmen  agree  to  work 
for  no  one  excepting  employers  belonging  to 
237 


The  Trust  Problem 

the  association,  whereas  the  employers,  on  their 
part,  agree  to  hire  no  one  excepting  men  belong- 
ing to  this  union.  It  is  thus  a  coalition  between 
employers  and  employees  to  secure  high  wages, 
and  at  any  rate  reasonable  profits,  although  this 
may  well  be  at  the  expense  of  the  general  con- 
sumer. Mr.  Smith  says  that  he  does  not  con- 
sider one  of  his  combinations  a  success  until  it 
has  shown  itself  able  to  increase  prices.  He 
does  not  think  that  the  consuming  public  ought 
to  be  aggrieved  at  any  normal  increase  in  price 
thus  made,  because  he  believes  that  laborers  and 
capitalists  are  worthy  of  their  hire,  and  that 
consumers  ought  to  be  willing  to  pay  not  merely 
cut-throat  prices,  but  what  he  calls  "  reasonable 
prices.'* 

It  is  true  that  he  acknowledges  that  the 
average  profit  agreed  upon  for  the  bedstead 
combination  was  about  lo  per  cent,  on  the  en- 
tire cost  of  production,  and  that  in  the  industry 
in  question  a  turn  over  of  the  capital  was  ex- 
pected from  two  to  three  times  each  year,  mak- 
ing certainly  a  profit  that  would,  by  most 
consumers,  at  any  rate,  if  not  by  others,  be 
considered  plenty  high  enough.  This  plan  of 
Mr.  Smith's  seemed  to  have  worked  very  suc- 
25S 


Industrial  Combinations  in  Europe 

cessfully  for  some  ten  years  in  the  bedstead 
trade,  and  to  have  spread  successfully  in  other 
lines;  but  within  a  few  months  misfortunes 
have  come  and  the  combination  has  been,  tem- 
porarily, at  any  rate,  under  somewhat  of  a  cloud. 
It  is  probable  that  in  Europe  capitalization 
is,  relatively  speaking,  not  so  high  as  in  the 
United  States.  This  is  due  in  part  to  busi- 
ness habits — more  particularly,  probably,  to  the 
greater  degree  of  publicity  required  for  corpora- 
tions as  well  as  for  most  other  forms  of  business 
enterprises.  In  England,  when  one  of  the  large 
corporations  has  been  formed,  there  has  been 
made  pretty  regularly  a  careful  appraisal  of  the 
value  of  the  separate  plants  as  going  concerns 
with  a  capitalization  at  a  moderate  rate  of  the 
earnings  of  the  separate  plants  for  several  years 
preceding  the  combination.  It  is  doubtless 
true  that  In  a  good  many  Instances  these  ap- 
praisals are  made  rather  high ;  but  so  far  as  one 
can  learn.  It  has  been  only  In  the  rarest  cases 
that  there  has  been  issued  watered  stock  to 
double  or  treble  or  quadruple  the  value  of  the 
tangible  assets,  and  rarely  also  is  the  stock 
Issued  beyond  an  amount  upon  which  there 
might  be  reasonable  hope  of  paying  dividends. 
239 


The  Trust  Problem 

In  Germany,  Austria,  and  France,  whenever 
the  combinations  have  assumed  the  form  of  a 
stock  corporation,  the  rigid  laws  have  practically 
held  capitalization  down  to  the  actual  cash  value 
of  the  assets,  estimating  the  establishment  as  a 
going  concern,  the  promoter  receiving  his  pay, 
if  he  receives  it  at  all,  either  in  some  fixed  sum 
for  his  trouble  or  in  the  profit  that  would  come 
from  selling  shares  at  a  premium. 

The  eff^ect  of  the  combinations  in  Europe  on 
prices  of  the  product  seems  to  have  been,  on 
the  whole,  substantially  that  which  has  been  in- 
dicated in  Chapter  VIII.  as  the  effects  of  the 
United  States  combinations.  Managers  call  at- 
tention to  the  savings  of  combination,  and  to 
the  fact  that  at  times  prices  are  lowered;  but 
perhaps  more  frequently,  when  one  considers 
the  matter  with  them  dispassionately,  they  will 
acknowledge  that  they  believe  the  former  profits 
were  too  low,  and  that  their  prices  have,  on  the 
whole,  been  slightly  increased  as  a  result  of  the 
combination.  Almost  invariably  they  add  that 
they  hope  ultimately  to  be  able  to  reduce  the  ab- 
solute prices  more  rapidly  than  they  could  have 
done  without  the  combination ;  but  they  expect, 
practically  in  all  cases,  to  maintain   the  margin 


Industrial  Combinations  in  Europe 

between  the  cost  of  the  raw  material  and  the 
price  of  the  finished  product  at  a  somewhat 
higher  rate  than  existed  before.  Practically, 
however,  in  every  case,  they  believe,  that  by 
their  adaptation  of  the  supply  of  the  product  to 
the  market  demand  they  will  be  able  to  keep 
prices  much  steadier  than  before,  and  to  keep 
their  labor  more  regularly  employed,  thus  not 
merely  ensuring  somewhat  more  secure  profits 
for  themselves,  but  also  protecting  to  a  very 
material  extent  both  the  laborers  and  the  con- 
suming public  against  the  ill  effects  of  commer- 
cial crises  brought  on  often  by  unregulated  and 
ignorant  over-production. 

More  interesting  in  certain  ways  than  the 
mere  study  of  domestic  prices  is  the  subject 
of  export  prices  and  the  relation  of  the  tariff 
to  prices.  Of  course  it  has  been  the  custom 
in  most  countries,  not  merely  in  the  export 
but  also  in  the  domestic  trade,  when  customers 
are  somewhat  widely  removed  from  the  manu- 
facturing establishment  and  it  is  somewhat  diffi- 
cult to  secure  their  patronage,  to  make  particu- 
larly low  prices  in  order  to  get  rid  of  a  surplus 
stock.  It  has  regularly  been  explained,  and 
doubtless  with  much  reason,  that  this  disposal 
i6  241 


The  Trust  Problem 

of  a  surplus  stock  at  low  rates,  even  indeed 
below  cost,  does  not  increase  the  price  of  the 
product  to  home  consumers,  inasmuch  as  by 
exporting  the  surplus  the  plant  can  be  run  to 
its  full  capacity  when  otherwise  it  is  neces- 
sary to  close  it  down  at  intervals  in  order  to 
prevent  an  accumulation  of  surplus  stock. 
The  cheaper  production  coming  from  running 
the  plant  all  of  the  time  at  full  capacity  may 
thus  so  lessen  the  cost  of  manufacture  that  the 
domestic  product  may  sell  lower,  even  though 
the  profit  on  it  is  paying  for  the  loss  of  the  ex- 
port goods,  than  would  have  been  possible  had 
a  much  smaller  product  been  manufactured  at 
the  increased  cost  brought  about  by  only  a  par- 
tial use  of  the  producing  capacity. 

Many  persons,  however,  have  been  inclined 
to  criticise  the  combinations  by  asserting  that 
owing  to  their  monopolistic  power  they  were 
able  to  secure  abnormally  high  prices  from  con- 
sumers at  home,  and  that  v/hen  they  sold  abroad 
at  somewhat  lower  rates,  they  were  still  not  sell- 
ing at  a  loss,  but  were  thus  showing  merely  the 
degree  of  oppression  which  they  were  exercising 
upon  the  home  consumer. 

This  argument  has  frequently  been  combined 
242 


Industrial  Combinations  in  Europe 

with  that  made  in  connection  with  a  protective 
tariff.  When  in  a  protected  industry  relieved 
of  foreign  competition  domestic  prices  are  kept 
materially  higher  than  export  prices,  it  is  per- 
haps a  not  unnatural  conclusion  that  the  tariff 
is  fostering  monopoly,  and  that  the  monopoly 
is  making  huge  profits  at  the  expense  of  the 
domestic  consumer.  Doubtless  in  certain  cases 
there  is  a  very  considerable  element  of  truth  in 
the  charge,  but  the  reply  is  ordinarily  given  as 
above. 

Herr  Wittgenstein,  the  founder  of  the  great 
iron  combination  in  Austria,  explains  that  the 
protective  tariff  was  needed  for  the  sake  of  the 
industry',  and  had  been  levied  by  the  govern- 
ment because  it  was  wise.  Ought  not,  there- 
fore, the  manufacturer  to  meet  the  expectations 
of  the  law-givers  by  adding  to  the  price  at  which 
foreign  goods  might  without  the  protective  tariff 
be  sold  in  the  country  the  amount  of  the  tariff 
itself?  In  case  this  were  unreasonable,  why 
was  the  tariff  levied  ?  If  it  proved  unreason- 
able, let  it  be  lowered.  So  far  as  selling  the 
goods  in  foreign  markets  at  lower  rates  is  con- 
cerned, not  merely  do  the  iron  manufacturers, 
but  many  others,  say  that,  as  has  been  intimated 
243 


The  Trust  Problem 

above,  only  by  such  low  prices  can  they  enter 
the  foreign  markets  at  all  and  dispose  of  a  sur- 
plus which,  if  it  had  to  be  sold  in  the  home 
country,  would  compel  the  partial  closing  of  the 
plants  to  the  great  detriment  of  numbers  of 
laborers,  and  with  the  result  of  increasing  de- 
cidedly the  cost  of  production. 

The  iron  manufacturers  in  Austria  and  Ger- 
many and  France  do  not  hesitate  at  all  to  say 
that  in  fixing  their  prices  they  practically  take 
the  price  of  the  chief  competing  foreign  coun- 
try and  add  to  that  the  costs  of  freight  and 
their  own  home  tariff.  They  believe  that  they 
are  justified  in  so  doing.  In  individual  cases, 
as,  for  example,  that  of  the  iron  combinations 
in  Germany,  the  combination  has  even  found  it 
wise,  as  did  the  distillers  in  the  United  States 
under  the  old  Whiskey  Pool,  to  assess  them- 
selves in  order  to  pay  export  premiums  to  those 
of  their  numbers  who  are  selling  their  surplus 
stock  in  the  foreign  market  at  a  loss. 

Beyond  much  question,  in  two  or  three  of 
the  European  countries  at  least,  the  desire  to 
secure  somewhat  greater  power  in  contests  with 
the  labor  unions  has  exerted  a  noticeable  influ- 
ence toward  forming  the  combinations.  Never- 
244 


Industrial  Combinations  in  Europe 

theless,  speaking  generally,  the  combinations 
seem  to  be  ready  to  recognize  trade  unions  and 
to  deal  with  them  on  reasonable  terms.  In  the 
case  of  the  coal  syndicate  of  Germany,  the 
manager  says  that  in  his  judgment  the  leaders 
of  the  union  believe  that  the  combination  has 
been  to  their  advantage;  that  it  has  been  so 
managed  as  to  give  the  men  steady  employment 
at,  on  the  whole,  steadily  increasing  wages;  and 
that  it  is  likely  in  the  future  to  prevent  industrial 
crises  which  will  lead  to  more  unfavorable  con- 
ditions for  them.  They,  therefore,  are,  on  the 
whole,  inclined  to  favor  the  syndicate.  In  the 
case  of  the  Bradford  Dyers  in  England,  the 
workingmen  and  employers  have  a  joint  bureau 
for  the  settlement  of  disputes  which  may  arise, 
with  a  fund  on  both  sides  to  pay  damages  in 
case  of  dispute,  and  the  two  classes  seem  to  be 
working  together  with  mutual  respect,  and,  on 
the  v/hole,  in  harmony. 

It  has  alreadv  been  noted  that  the  E.  J.  Smith 
combinations  were  founded  upon  an  alliance 
between  the  workingmen  and  the  employers. 
Generally  speaking,  throughout  Europe,  so  far 
as  one  can  gather,  there  seems  to  be  little  hos- 
tility on  the  part  of  the  laborers  toward  the 
245 


The  Trust  Problem 

combinations,  and  so  far,  indeed,  as  one  can 
see,  there  is  not  in  Europe  the  same  degree  of 
hostility  on  the  part  of  the  public  toward  the 
concentration  of  capital  that  exists  in  the  United 
States. 

It  is  true  that  the  people  in  England  complain 
at  times  of  the  number  of  members  of  Parlia- 
ment who  hold  directorships  in  corporations, 
but  they  evidently  consider  this  rather  a  hint 
toward  political  corruption  than  an  attack  upon 
combinations  as  such;  and  they  do  not  have  any 
especial  fear  of  the  power  of  monopoly. 

In  France  some  of  the  leaders  of  the  Radicals 
seem  to  believe  that  the  government  ought  to 
take  certain  active  measures  toward  investigat- 
ing the  question  of  combination  with  the  possi- 
ble thought  of  protecting  the  people;  but  here 
a2;ain  those  of  socialistic  tendencies  are  rather 
inclined  to  welcome  the  drift  toward  combina- 
tion as  a  first  step  tov/ard  state  socialism,  and 
do  not  apparently  have  any  fear  of  losing  per- 
sonal liberty  through  such  influence. 

Similar  are  the  conditions  in  Austria  and  Ger- 
many.     In  Austria  there   has  apparently  been 
a  somewhat  greater  feeling  of  dread  and  of  hos- 
tility   toward    the    combinations    than    in    any 
246 


Industrial  Combinations  in  Europe 

other  European  country.  It  is  possible  that 
here  the  movement  may  have  been  almost  as 
active  at  times  as  in  the  United  States.  The 
opponents,  however,  find  it  much  more  difficult 
to  bring  about  legislation  than  in  the  United 
States,  so  that  comparatively  little  has  been 
done,  and  whatever  agitation  there  may  have 
been  has  been  limited  largely  to  editorials  and 
speeches  without  any  very  effective  results. 

In  Germany  the  high  price  of  coal  during 
the  last  two  years  has,  by  many,  been  ascribed 
to  the  coal  syndicate,  and  there  has  been  much 
bitter  complaint.  On  the  other  hand,  how- 
ever, those  who  have  looked  most  closely  into 
the  matter — chambers  of  commerce,  members 
of  the  government,  and  others — seem  to  have 
reached  the  conclusion  that  the  increased  price 
of  coal  is  due  rather  to  the  extraordinary  de- 
mand which  has  come  from  the  present  period 
of  prosperity.  They  call  attention  to  the  fact 
that,  although  the  price  has  increased,  the  in- 
crease is  much  less  rapid  than  it  was  in  the  sev- 
enties and  eighties  under  somewhat  similar  cir- 
cumstances,  and  that  as  yet,  at  any  rate,  the 
price  has  not  reached  so  high  a  point.  They 
note  still  further  that  the  coal  syndicate  has 
247 


The  Trust  Problem 

opened  new  mines,  and  has  increased  its  output 
to  a  greater  extent  than  have  the  independent 
coal  producers.  On  the  whole,  they  are  rather 
inclined  to  give  the  syndicate  the  credit  of 
checking  an  abnormal  tendency  toward  over- 
production and  speculation,  with  the  danger  of 
a  consequent  crisis,  than  to  blame  it  for  the 
course  that  it  has  followed. 

Questions  in  the  House  of  Representatives 
of  Prussia  and  in  the  Imperial  Reichstag  have 
called  from  the  Minister  of  Commerce  words 
of  defence  and  even  of  commendation  for  the 
syndicate. 

With  the  exception  of  the  coal  syndicate, 
there  seems  to  have  been  relatively  little  com- 
plaint made  in  Germany  against  the  combina- 
tions. 

So  far  as  actual  or  contemplated  legislation 
is  concerned,  a  little  more  may  perhaps  be  said. 
In  England,  the  amendments  of  the  year  1900 
to  the  stock  corporation  law  have  been  in  the 
direction  of  enforced  publicity  to  a  much  greater 
degree.  The  earnings  of  promoters  must  be 
laid  bare;  and  the  regular  profits  or  losses  of 
the  business,  if  the  law  is  enforced  with  a  rea- 
sonable degree  of  care,  may  certainly  be  known 
248 


Industrial  Combinations  in  Europe 

to  the  stockholders  and  to  the  general  public. 
Legislation  against  combinations  as  such  has 
not  been  made,  but  under  the  old  common  law 
monopolies  and  contracts  in  restraint  of  trade 
are,  of  course,  forbidden  or  declared  invalid. 
Nevertheless,  the  English  courts  have  taken  a 
position  somewhat  different  from  that  followed 
by  the  courts  of  the  United  States.  They  seem 
rather  to  be  of  the  opinion  that  an  agreement 
for  the  protection  of  one*s  own  business,  even 
though  it  may  seriously  injure  competitors,  is 
not  to  be  looked  upon  as  a  combination  in  un- 
reasonable restraint  of  trade,  but  rather  as  a 
justifiable  measure  of  protection  and  one  that 
should  be  considered  valid. 

In  France,  the  provision  of  the  French  Penal 
Code,  which  forbids  coalitions  to  raise  prices, 
especially  if  fraudulent  representations  are  used, 
has,  beyond  doubt,  had  a  very  deterrent  effect 
toward  open  agreements  on  prices.  Combina- 
tions have  either  taken  the  form  of  single  cor- 
porations, or,  like  the  Comptoir  Metallurgique 
de  Longwy,  have  organized  a  selling  bureau  as 
an  independent  establishment  which  buys  and 
sells  the  products  of  the  different  members,  or 
else,  like  the  sugar  combination,  they  take  the 
249 


The  Trust  Problem 

form  of  an  agreement  regarding  output  and  al- 
low the  prices  to  be  regulated  thereby  without 
any  formal  contract  on  that  subject  being  made. 
The  drift  toward  combination  in  France  is  un- 
mistakable, but  it  is  very  evident  that  this  law 
has  checked  the  open  movement,  and  has  also 
affected  to  a  considerable  degree  the  form  which 
combinations  assume. 

In  Germany,  the  courts  have  upheld,  in  one 
or  two  very  striking  decisions,  the  principle  that 
agreements  to  prevent  ruinous  competition,  and 
to  maintain  prices  so  that  there  shall  be  a  rea- 
sonable return  upon  capital,  are  to  be  considered 
valid,  and  that  penalties  in  such  agreements  in 
the  nature  of  fines  upon  those  who  violate  them 
may  be  enforced  by  law.  The  court  in  one  de- 
cision says :  "  When  in  a  branch  of  industry  the 
prices  of  the  product  fall  too  low,  and  the  suc- 
cessful conduct  of  the  industry  is  endangered  or 
made  impossible,  the  crisis  setting  in  as  the  re- 
sult of  such  a  state  of  affairs  is  detrimental  not 
only  to  individuals,  but  also  to  society  as  a  whole, 
and  it  is  therefore  in  the  interests  of  the  com- 
munity that  improperly  low  prices  should  not 
exist  in  a  certain  branch  of  industry  for  a  long 
time.  Therefore,  it  cannot  be  simply  and  gen- 
250 


Industrial  Combinations  in  Europe 

erally  considered  as  contrary  to  the  interests  of 
the  community  when  entrepreneurs  interested  in 
a  certain  branch  of  industry  unite  with  the  ob- 
ject of  preventing  or  moderating  the  mutual 
underselling,  and  as  a  result  of  the  latter,  the 
fall  of  the  prices  of  their  products.  On  the 
contrary,  when  prices  are  for  a  long  time  ac- 
tually so  low  that  financial  ruin  threatens  the 
entrepreneurs^  their  combination  appears  to  be 
not  merely  a  legitimate  means  of  self-preserva- 
tion, but  also  a  measure  serving  the  interests  of 
the  community." 

In  Austria,  as  has  been  intimated,  the  feel- 
ing against  combinations  has  been  considerably 
stronger.  In  1897  ^^^  combinations  among 
brewers,  sugar  refiners,  and  others  seemed  to 
the  government  to  threaten  somewhat  the  inter- 
ests of  the  treasury,  inasmuch  as  if  prices  should 
be  increased  and,  in  consequence,  the  consump- 
tion should  fall  off,  the  tax  levied  upon  those 
products  would  be  materially  lessened.  With 
this  thought  in  mind,  the  Finance  Depart- 
ment proposed  a  bill  placing  these  combinations 
whose  goods  were  subject  to  the  consumption 
tax  under  the  somewhat  rigid  supervision  of 
the  government,  and  providing  that  in  case  un- 
251 


The  Trust  Problem 

reasonable  measures  were  taken,  the  govern- 
ment might  forbid  a  contract  or  might  give  the 
fullest  degree  of  publicity  to  all  of  the  business 
of  the  combination.  Owing  in  part  to  the  polit- 
ical condition  of  Austria,  in  part  also,  perhaps, 
to  the  fact  that  the  law  was  not  more  general 
in  its  application,  nothing  further  has  come  of 
this.  Meanwhile  the  Department  of  Trade 
and  Industry  more  than  a  year  ago  appointed 
a  special  committee  to  consider  the  subject  of 
the  regulation  of  the  combinations.  This  com- 
mittee, after  careful  discussion  of  the  whole 
question,  has  lately  handed  in  its  report  to  the 
Section  for  Industry,  Manufactures  and  Trade, 
and  has  made  the  following  recommenda- 
tions : 

''  (i)  That  the  combinations  be  recognized 
as  legal  organizations,  and  be  put  in  conse- 
quence into  legal  form. 

**  (2)  That  every  combination  be  obliged  to 
record  its  founding  with  a  combination  bureau 
or  court,  which  shall  be  given  certain  judicial 
powers. 

'*  (3)  This  combination  court  should  have 
also  the  powers  of  a  court  of  the  first  instance 
to  settle   primarily  all   controversies  at  private 


Industrial  Combinations  in  Europe 

law  arising  in  the  course  of  the  business  of  the 
combination. 

*'  (4)  For  the  checking  of  any  tendency  to- 
ward monopolistic  prices  on  the  part  of  the 
combination  through  its  limitation  of  free  com- 
petition, measures  in  the  direction  of  the  modi- 
fication of  import  duties,  and  of  freight  rates 
on  the  State  railroads,  should  be  taken,  as  well 
as  measures  looking  toward  the  furtherance  of 
unions  to  oppose  the  combinations.  (Presum- 
ably organizations  among  dealers  and  others.) 

*'  (5)  For  the  purpose  of  deliberating  and  of 
deciding  regarding  the  measures  to  be  taken  by 
the  administration,  there  should  be  created  a 
Monopoly  and  Combination  Council,  which 
should  be  a  consultative  organ  of  the  Ministry 
of  Trade  and  Commerce. 

"  (6)  Finally,  the  government  was  formally 
requested  on  the  basis  of  this  report  to  prepare 
a  bill  for  a  law  on  combinations  to  be  laid  be- 
fore the  Committee  on  Combinations  for  con- 
sideration.'* 

This  so  far  seems  to  be  the  most  advanced 
step  taken  in  any  European  country  regarding 
restrictive  legislation.  It  seems  not  at  all  im- 
probable that,  as  the  result  of  this  careful  study 
253 


The  Trust  Problem 

on  the  part  of  the  government,  some  legislative 
measures  may  be  passed  within  a  year  or  two. 
It  should  be  noted  that  the  result  of  this  study 
— and  one  may  say  that  similar  opinions  seem 
to  be  prevalent  also  elsewhere  in  Europe — is 
that  the  combinations  are  not  to  be  set  aside, 
but  are  to  be  recognized  as  normal  institutions 
in  modern  industry,  and  are  to  be  restricted  only 
by  certain  measures  on  the  part  of  the  govern- 
ment, which  will  prevent  abuse  of  the  powei 
which  they  undoubtedly  possess. 


254 


APPENDIX 


APPENDIX  A 

FORMULATION  OF  SUGGESTED 
METHODS  FOR  THE  SOLUTION 
OF   THE   TRUST    PROBLEM 

By  William  Wirt  Howe, 

Permanent  Chairman  of  the  Chicago  Conference  on  Trusts 

When  I  came  to  this  meeting  as  a  dele- 
gate from  the  New  Orleans  Board  of  Trade,  I 
prepared,  at  the  request  of  the  Civic  Federation, 
a  paper  on  some  of  the  questions  here  in  de- 
bate; but  when  by  your  kind",ess  I  was  called 
to  preside  over  your  deliberations,  it  was  deemed 
more  becoming  that  your  chairman  should  not 
undertake  to  express  any  views  on  these  ques- 
tions, or  undertake,  even  if  I  could,  to  influ- 
ence any  opinion.  And  so,  with  a  little  of  that 
paternal  anguish  which  may  have  visited  the 
soul  of  Abraham  when  he  thought  himself  in 
conscience  bound  to  sacrifice  his  son,  I  sup- 
pressed the  little  paper.  The  suppression  was 
fortunate,  because  if  the  paper  were  to  be  writ- 
ten this  evening  it  would  be  a  better  one,  for 
the  reason  that  its  author  has  learned  a  good 
deal  in  the  last  four  days. 

17  257 


The  Trust  Problem 

In  what  are  called  courts  of  conciliation,  in 
some  jurisdictions,  the  constant  aim  of  the  pre- 
siding magistrate  is  to  note  those  admissions 
and  concessions  of  the  contending  parties  them- 
selves which  may  be  found  even  in  apparently 
hopeless  disputes,  and  to  make  those  admis- 
sions and  concessions  a  basis  for  a  judgment 
substantially  just. 

Now,  following  this  sensible  idea,  where  do 
we  stand  after  four  days  of  discussion,  always 
interesting,  often  profoundly  scientific,  and 
sometimes  passing  into  the  brilliant  sphere  of 
oratory  ?  It  seems  to  me — simply  as  an  indi- 
vidual, of  course — that  almost  every  paper  or 
address  we  have  heard  has  made  some  admis- 
sions or  concessions  which  may  form  a  basis 
for  some  conclusions,  and  if  you  will  allow  me 
I  will  formulate  some  of  them  only,  as  follows : 

1.  Combinations  and  conspiracies  in  the  form 
of  trusts  or  otherwise  in  restraint  of  trade  or 
manufacture,  which  by  the  consensus  of  judicial 
opinion  are  unlawful,  should  so  be  declared  by 
legislation,  with  suitable  sanctions,  and,  if  pos- 
sible, by  a  statute  uniform  in  all  jurisdictions, 
and  also  uniform  as  to  all  persons,  and  such  a 
statute  should  be  thoroughly  enforced,  so  that 
those  who  respect  it  shall  not  be  at  a  disadvan- 
tage as  compared  with  those  who  disregard  it. 

2.  That  the  organization  of  trading  and  in- 
dustrial corporations,  whether  under  general  or 
special   laws,  be  permitted  only  under  a  system 

258 


Chicago  Trust  Conference 

of  careful  governmental  control,  also  uniform,  if 
possible,  in  all  jurisdictions,  whereby  many  of 
the  evils  of  which  complaint  is  now  made  may 
be  avoided. 

3.  The  objects  of  the  corporation  should  be 
confined  within  limits  definite  and  certain.  The 
issue  of  stock  and  bonds,  which  has  been  a 
matter  of  so  much  just  criticism  and  complaint, 
should  be  guarded  with  great  strictness.  If 
mortgage  bonds  seem  to  be  required,  they  should 
be  allowed  only  for  a  moderate  fraction  of  the 
true  cash  value  of  the  property  that  secures 
them.  As  for  issues  of  stock,  they  should  be 
safeguarded  in  every  possible  way.  They 
should  only  be  allowed  either  for  the  money  or 
for  property  actually  received  by  the  company, 
and  dollar  for  dollar,  and  when  the  property  is 
so  conveyed  it  should  be  on  an  honest  appraise- 
ment of  actual  value,  so  that  there  may  be  no 
watering  of  stock. 

4.  And  finally,  there  should  be  a  thorough 
system  of  reports  and  governmental  inspection, 
especially  as  to  issues  of  bonds  and  stock  and 
the  status  and  value  of  property,  whether  cor- 
poreal or  incorporeal.  Yet,  at  the  same  time, 
in  the  matter  of  trading  and  industrial  com- 
panies, there  are  legitimate  business  secrets 
which  must  be  respected  by  the  general  public. 
In  short,  we  need  to  frankly  recognize  the  fact 
that  trading  and  industrial  corporations  are 
needed  to  organize  the  activities  of  our  country, 

259 


The  Trust  Problem 

and  that  they  are  not  to  be  scolded  or  belied, 
but  controlled,  as  we  control  steam  and  elec- 
tricity, which  are  also  dangerous,  if  not  carefully 
managed,  but  of  wonderful  usefulness,  if  rightly 
harnessed  to  the  car  of  progress. 


260 


APPENDIX  B 

PRELIMINARY   REPORT   OF   THE 
INDUSTRIAL   COMiMISSION 

To  THE  Senate  and  House  of  Representa- 
tives,  Fifty-sixth  Congress  : 

The  act  of  June  i8,  1898,  creating  the  In- 
dustrial Commission,  authorizes  it  to  "report 
from  time  to  time  to  the  Congress  of  the  United 
States."  As  the  subject  of  "Trusts,"  or 
Industrial  Combinations,  seemed  to  be  one  upon 
which  there  was  pressing  demand  for  trustworthy 
information,  your  Commission  gave  it  early 
attention.  Although  we  have  examined  sixty- 
two  witnesses  on  trust  topics,  whose  testimony 
is  herewith  submitted,  our  inquiry  has  been 
limited  to  eleven  of  the  more  prominent,  but 
typical,  combinations.  This  leaves  quite  a  large 
field  for  further  investigation,  but  the  urgent 
demand  for  information  leads  us  to  submit  what 
we  have  in  hand  at  this  time.  As  a  result  of 
our  investigation  of  industrial  combinations  thus 
far,  your  Commission  are  of  opinion  that  certain 
evils  in  connection  with  them  should  be  checked 
by  appropriate   legislation.      Experience  proves 

261 


The  Trust  Problem 

that  industrial  combinations  have  become  fix- 
tures in  our  business  life.  Their  power  for  evil 
should  be  destroyed  and  their  means  for  good 
preserved.  As  a  result  of  further  investigation 
on  our  part,  or  of  further  development  on  the 
part  of  the  combinations,  it  may  be  possible 
later  to  propose  additional  measures  for  relief 
without  running  the  risk  of  increasing  the  evils. 
At  present  we  propose  the  following,  which,  if 
severally  adopted  by  the  States,  or  so  far  as  pos- 
sible by  the  Federal  Government,  we  are  confi- 
dent will  be  of  great  service,  and  will  not 
endanger  business  prosperity. 

To  prevent  the  organizers  of  corporations  or 
industrial  combinations  from  deceiving  investors 
and  the  public,  either  through  suppression  of 
material  facts  or  by  making  misleading  state- 
ments, your  Commission  recommend  : 

(^)  That  the  promoters  and  organizers  of 
corporations  or  industrial  combinations  which 
look  to  the  public  to  purchase  or  deal  in  their 
stocks  or  securities  should  be  required  to  furnish 
full  details  regarding  the  organization,  the  prop- 
erty, or  services  for  which  stocks  or  securities 
are  to  be  issued,  amount  and  kind  of  same,  and 
all  other  material  information  necessary  for  safe 
and  intelligent  investment  ; 

(J?)  That  any  prospectus  or  announcement  of 
any  kind  soliciting  subscriptions,  which  fails  to 
make  full  disclosures  as  aforesaid,  or  which  is 
false,    should    be    deemed    fraudulent,    and   the 

262' 


Report  of  Industrial  Commission 

promoters,   with    their    associates,   held    legally 
responsible  ; 

(c)  That  the  nature  of  the  business  of  the 
corporation  or  industrial  combination,  all  powers 
granted  to  directors  and  officers  thereof,  and  all 
limitations  upon  them  or  upon  the  rights  or 
powers  of  the  members,  should  be  required  to  be 
expressed  in  the  certificate  of  incorporation, 
which  instrument  should  be  open  to  inspection 
by  any  investor. 

The  affairs  of  a  corporation  or  industrial 
combination  should  be  carried  on,  without  detri- 
ment to  the  public,  in  the  interest  of  its  mem- 
bers, and  under  their  lawful  control.  To  this 
end  the  directors  or  trustees  should  be  required : 

(a)  To  report  to  the  members  thereof  its 
financial  condition  in  reasonable  detail,  verified 
by  a  competent  auditor,  at  least  once  each  year ; 

(b)  To  inform  members  regarding  the  method 
and  conduct  of  business  by  granting  them,  under 
proper  restrictions,  access  to  records  of  directors' 
meetings,  or  otherwise  ; 

(r)  To  provide  for  the  use  of  members, 
before  the  annual  meetings,  lists  of  members, 
with  their  addresses,  and  their  several  holdings  -, 
and 

(d)  To  provide,  in  whatever  other  ways  may 
be  named  in  the  certificate  of  incorporation, 
means  wherebv  the  members  may  prevent  the 
misuse  of  their  propertv  by  directors  or  trustees. 

The  larger  corporations — the  so-called  trusts — 

263- 


The  Trust  Problem 

should  be  required  to  publish  annually  a  properly 
audited  report,  showing  in  reasonable  detail  their 
assets  and  liabilities,  with  profit  or  loss  ;  such 
report  and  audit  under  oath  to  be  subject  to 
Government  inspection.  The  purpose  of  such 
publicity  is  to  encourage  competition  when 
profits  become  excessive,  thus  protecting  con- 
sumers against  too  high  prices  and  to  guard  the 
interests  of  employees  by  a  knowledge  of  the 
financial  condition  of  the  business  in  which 
they  are  employed. 

From  the  testimony  given  before  the  Com- 
mission, and  herewith  submitted,  it  has  been 
proved  that,  before  the  passage  of  the  Interstate 
Commerce  Act,  discriminating  freight  rates 
were  frequently  secured  by  large  shippers.  Other 
evidence  herewith  submitted,  to  be  supplemented 
by  additional  testimony  which  will  be  laid  before 
the  Congress  shortly,  seems  to  show  that  like 
discriminating  favors  are  even  now  granted. 
Believing  that  these  discriminations  clearly  tend 
toward  the  control  of  business  by  large  combi- 
nations, your  Commission  further  recommend  : 

(^)  That  the  Interstate  Commerce  Commis- 
sion be  given  authority,  not  only  to  prescribe 
the  methods  of  keeping  accounts  of  the  rail- 
roads and  to  demand  reports  in  such  detail  as  it 
may  require,  but  also  to  inspect  and  audit  said 
accounts  ; 

(^)  That  the  Interstate  Commerce  Law  be 
so   amended    as  to   make   the    decisions   of  the 

264 


Report  of  Industrial  Commission 

Commission  operative  at  a  day  fixed  in  the  de- 
cisions and  until  reversed  by  the  United  States 
courts,  on  appeal  ; 

(r)  That  the  Interstate  Commerce  Commis- 
sion be  authorized  to  prescribe  classifications  of 
freight  articles,  and  to  make  rules  and  regula- 
tions for  freight  transportation,  throughout  the 
United  States  ;  and 

(^)  That  penalties  for  violations  of  the  Inter- 
state Commerce  Act  should  be  appropriate  fines 
against  the  carrier,  and  not  imprisonment  of 
officials. 

James    H.    Kyle,    Chairman. 

Boies  Penrose. 

J.  J.  Gardner  (as  to  trusts). 
*Wm.  Lorimer. 

L.   F.   Livingston. 

Jno.   C.   Bell. 

Theo.   Otjen. 

Lee  Mantle. 

A.   L.   Harris. 

Ellison  A.   Smyth. 
•  John  M.   Farquhar. 

Eugene  D.   Conger. 

Thos.   W.   Phillips. 

C.  J.   Harris. 

M.   D.   Ratchford. 

John  L.   Kennedy. 
t  Albert  Clarke. 

*  I  concur    in  the   recommendations  of  the 

265 


The  Trust  Problem 

Commission  on  industrial  combinations,  but 
withhold  my  judgment  on  transportation  cor- 
porations until  testimony  now  being  compiled 
by  Commission  is  submitted  to  Congress,  with 
recommendations. 

Wm.    Lorimer. 

1 1  concur  in  all,  except  paragraph  marked  (^), 
page  238.  It  seems  to  me  better  that  rates  fixed 
by  Interstate  Commerce  Commission  should 
not  go  into  effect  in  case  of  appeal  until  affirmed 
by  court,  and  that  trial  on  appeal  should  be 
expedited. 

Albert  Clarke. 


266 


APPENDIX   C* 

PLAN  OF  BIRD  S.  COLER,  COMP- 
TROLLER OF  NEW  YORK  CITY, 
FOR  THE  REGULATION  OF 
TRUSTS  t 

Whatever  the  State  creates  it  should  either 
supervise  or  control.  Government  was  created 
for  the  protection  of  all  and  not  that  the  repre- 
sentatives of  the  people  should  barter  away  the 
public  rights  and  utilities  in  perpetuity.  Every 
corporation  should  have  a  definite  period  of  ex- 
istence and  the  right  of  renewal  should  rest  with 
the  state  and  not  with  those  in  interest.  Busi- 
ness that  requires  secrecy  of  management  and 
manipulation  of  securities  is  not  entitled  to  the 
protection  of  the  State,  and  should  be  refused 
corporate  powers. 

No  corporation  should  be  allowed  to  issue 
securities  except  for  actual  value,  and  these 
should  not  be  placed  upon  the  public  market 
until  the  end  at  least  of  one  actual  business 
year,  and  then  only  after  public  reports  by  cer- 

*  The  arguments  and  comments  are  omitted,  as  in  the  other 
appendixes.     The  plan  is  given  in  full. 

+  "  Congressional  Record,"  Fifty-sixth  Congress,  first  session, 
V.  33.  P-  6,926. 

267 


The  Trust  Problem 

tified  accountants  under  employment  of  the  state 
and  bearing  its  seal.  This  to  check  stock 
jobbing  and  to  foster  legitimate  business  and 
investment,  and  also  to  provide  definite  in- 
formation upon  which  to  base  assessment  and 
taxation.    .    .    . 

Places  of  business  and  location  of  factories 
should  be  named  at  time  of  incorporation,  and 
no  removal  of  same  should  be  allowed  without 
consent  of  the  State.    .    .    . 

From  its  beginning  the  accounts  of  every  cor- 
poration obtaining  a  charter  privilege  from  a 
State  government  should  be  open  at  all  times  to 
examination  and  regulation  by  properly  appointed 
public  officers.    .    .    . 

Chartered  companies  should  be  compelled  to 
confine  their  investments  and  development  to 
the  legal  and  proper  conduct  of  the  business  for 
which  they  were  created  and  for  the  prosecution 
of  which  they  have  received  from  the  govern- 
ment special  privileges  and  powers.    .    .    . 

Uniform  laws  compelling  publicity  of  impor- 
tant matters  of  management,  frequent  examina- 
tions by  State  officials  prescribing  honest  systems 
of  keeping  accounts,  and  such  other  restrictions 
as  exigencies  may  require  for  the  good  of  all, 
including  the  protection  of  such  communities 
as  have  been  built  up  by  the  establishment  of 
business  concerns  and  the  forbidding  of  their 
abandonment  without  the  consent  of  the  State 
authorities    and    for    adequate    reasons    shown, 

268 


Mr.  Coler's  Plan 

should  be  immediately  enacted  throughout  the 
Union.    .    .    . 

The  sovereign  State  has  the  power  to  grant 
charter  privileges  for  purposes  that  are  in  con- 
sonance with  the  general  welfare  and  not  in 
violation  of  the  constitutional  rights  of  the  in- 
dividual. The  power  of  regulation  is  implied 
in  the  act  of  creation. 

The  abuse  of  the  privileges  derived  from  the 
people  by  these  favored  combines  merits  severe 
punishment,  and  necessary  legislation  for  such 
purpose  is  clearly  within  the  scope  of  the  legis- 
lative power  of  the  State.  The  opinion  that 
Congress  is  powerless  to  remedy  this  evil  with- 
out constitutional  change  is  generally  conceded, 
but  the  right  of  the  sovereign  State  in  the  prem- 
ises is  unquestioned. 

The  different  sections  of  our  country,  having 
varying  industries,  such  as  cotton  and  its  prod- 
ucts in  the  South,  know  best  how  to  control 
them. 


269 


APPENDIX   D 

THE    PROPOSED    NEW   YORK    BUSL 
NESS  COMPANIES'  ACT* 


Powers  a7td  Purposes 

Under  the  title,   Powers  and  Purposes,    the 
usual    provisions   regarding   legal    standing    and 

*  This  bill,  which  was  framed  to  carry  out  the  suggestions  in 
Governor  Roosevelt's  annual  messajre  sent  to  the  LcfT'slature, 
January,  1900,  was  in  form  a  complete  Business  Corporation  Law. 
It  was  intended  not  to  repeal  the  present  law,  but  to  provide  an 
alternative  law  under  which  corporations  that  wished  to  do  so 
might  organize  and  act ;  others  might  act  under  the  present  law. 

As  will  be  seen,  the  proposed  act  gives  much  greater  privileges 
to  corporations  in  many  particulars  than  does  the  present  law.  In 
other  respects,  especially  as  regards  publicity  of  accounts  and  of 
business  methods,  the  responsibility  of  directors,  etc.,  it  is  much 
more  rigid.  Corporations  of  the  highest  type  as  regards  financial 
stability  and  management,  having  nothing  to  conceal  for  which 
the  bill  calls,  might  well  wish  to  organize  under  it  to  give  them 
standing  as  well  as  to  secure  its  privileges.  Speculative  corpora- 
tions could  not  well  do  so.  The  line  would  thus  be  drawn  between 
the  two  classes,  to  the  manifest  advantages  of  investors  and  of  the 
public. 

The  provisions  giving  privileges  to  sound  corporations  under 
proper  restrictions  were  largely  suggested  by  James  B.  Dill,  Esq., 
of  the  New  York  Bar,  author  of  "  Dill  On  New  Jersey  Corpora- 
tions," and  they  are  to  a  considerable  extent  modelled  after  the  New 
Jersey  laws  with  additional  safeguards  for  the  public  interests.  The 
provisions  regarding  Promotion,  Auditing,  and  the  Annual  Report 
are  taken  largely  froni  the  Corporation  Laws  of  Victoria,  modelled 
after  those  of  England.  All  the  provisions  of  the  bill  were  submitted 
to  many  persons  qualified  to  criticise  them — corporation  lawyers, 
professors  of  corporation  law,  lawyers  with  no  interest  in  corpora- 
tions, prominent  business  men,  chartered  accountants,  and  others — 
and  valuable  suggestions  were  received  from  all,  the  effort  being 
made  to  make  the  act  as  rigid  regarding  publicity  as  it  could  be  made 
without  endangering  the  interests  of  sound  business.  It  is  believed 
that  the  enforcement  of  such  a  law  would  gradually  do  away  with 
a  large  part  of  the  evils  of  the  Trusts. 


New  York  Companies'  Act 

acts  are  made,  and  the  following  special  ones 
are  added : 

To  acquire  by  grant,  gift,  purchase,  de- 
vise or  bequest,  to  hold,  use,  mortgage,  pledge, 
and  to  dispose  of  any  property,  real  or  personal, 
and  any  rights  or  claims  thereupon,  therein  or 
thereto,  by  any  legal  title  to  the  same  extent  that 
a  natural  person  might  or  could  do. 

To  contract,  incur  obligations  and  bind 
others  in  its  favor  to  the  same  extent  and  in  the 
same  manner  that  a  natural  person  might  do.  * 

It  may  exercise  the  same  powers  outside  the 
State  of  its  origin  as  within  it,  subject  always  to 
the  laws  of  the  State  in  which  it  is  doing 
business,  but  no  corporation  shall  possess  or 
exercise  the  abov^e  mentioned  or  any  other  cor- 
porate powers,  except  such  incidental  powers  as 
shall  be  necessary  to  the  exercise  of  its  powers 
above  mentioned,  unless  they  are  contained  in 
the  certificate  of  incorporation. 

Corporations  are  forbidden  to  do  banking  or 
insurance  business,  or  to  take  names  implying 
such  powers  ;  but  they  may  be  formed  to  act  as 
registration  companies  under  this  act. 


As  the  author  of  this  book  took  the  final  responsibility  of  the 
acceptance  or  rejection  of  all  suggestions  made  in  its  preparation, 
he  has  felt  at  liberty  to  make  changes  in  the  parts  here  reprinted 
and  to  add  some  brief  explanatory  notes.  The  only  parts  of  the  bill 
printed  are  those  that  are  not  found  in  the  Corporation  Laws  of 
New  York,  or  those  that  are  needed  to  show  the  spirit  of  the  act. 
The  most  important  provisions  are  printed  in  full. 

*  It  will  be  observed  that  large  powers  are  conferred  ;  but  these 
powers  must  be  fully  declared  in  the  certificate  of  incorporation, 
and  very  rigid  provisions  to  prevent  abuses  are  made. 

271 


The  Trust  Problem 


Registered   Office  and  Agent  * 

Every  corporation  organized  under  this  act 
shall  have  and  keep  continuously  a  registered 
office  in  this  State,  and  an  agent  in  charge 
thereof,  which  agent  must  sign  the  certificate  of 
incorporation.  The  name  of  the  corporation 
shall  be  conspicuously  displayed  at  the  entrance 
to  such  office,  and  the  address  of  the  office  shall 
be  printed  upon  all  letter  heads  used  by  the  cor- 
poration. This  office  must  be  kept  open  regu- 
larly during  ordinary  business  hours  and  the 
agent  must  be  present  to  perform  the  duties 
required. 

In  the  registered  office  in  charge  of  its  regis- 
tered agent  must  be  kept  the  stock  book  and  a 
transfer  book  of  the  corporation,  v^^ritten  up  to 
date,  open  to  the  inspection  of  all  bona  fide 
stockholders,  and  ready  to  be  used  for  the  trans- 
fer of  stock.  These  books  must  show  at  all 
times  all  transfers  and  stockholdings. 

The  name  of  the  registration  agent,  and  the 
office  address  shall  appear  in  all  reports  of  the 
corporation  ;  otherwise  they  will  not  be  received 
by  the  State  officers. 

Every     registered     agent     shall,     during    the 


*  The  provisions  re^ardinj?  a  reg-istration  office  and  a^ent  will 
enable  any  person  who  has  a  right  to  know,  to  secure  regularly  and 
easily  any  information  needed,  and  will  enable  the  State  much 
more  readily  to  enforce  its  restrictive  regulations.  This  provision 
is  from  the  New  Jersey  law,  with  additional  regulations. 

272 


New  York  Companies'  Act 

month  of  April  of  each  year,  file  a  statement  ^  as 
of  the  first  of  April,  under  oath,  with  the 
Secretary  of  State  of  New  York,  which  shall 
specify : 

1.  The  names  of  the  corporations  for  which 
he  is  the  registered  agent. 

2.  Whether  such  corporations  have  or  have 
not  made  their  annual  report. 

3.  Whether  the  names  of  these  corporations 
have  been  at  all  times  displayed  before  their 
registered  ofiice. 

4.  Whether  the  provisions  rega  ding  the  keep- 
ing and  inspection  of  stock  and  transfer  books 
have  been  fully  complied  with. 

Such  report  shall  be  verified  by  the  agent  as 
true  to  the  best  of  his  knowledge  and  informa- 
tion and  belief,  and  shall  be  in  such  form  as  the 
Secretary  of  State  shall  prescribe,  and  on  such 
blanks  as  the  Secretary  of  State  may  furnish. 
No  fee  shall  be  charged  for  filing  such  report. 

For  failure  to  file  said  statement,  the  regis- 
tered agent  shall  be  liable  for  a  penalty  in  the 
sum  of  one  hundred  dollars,  to  be  sued  for  and 
recovered  by  the  Attorney  General  or  other  of- 
ficer designated  by  him,  or  by  the  district  attorney 
of  the  county  in  which  the  registered  office  is 
located. 


*  This  provision  is  entirely  new,  and  is  intended  to  aid  in  secur- 
ing proper  annual  reports. 


18  273 


The  Trust  Problem 


Certificate  of  Incorporation  * 

The  certificate  of  incorporation  shall  be 
signed  in  person  by  all  the  subscribers  to  the 
capital  stock  named  therein  and  by  the  registered 
agent. 

The  certificate  of  incorporation  shall  contain : 

1.  The  name  of  the  company,  which  shall 
not  be  the  same  as  that  of  any  other  company 
registered  in  this  State  or  likely  to  be  misunder- 
stood therefor. 

2.  The  location,  town  or  city,  street  or 
number,  if  there  be  number,  of  its  registered 
office  in  this  State. 

3.  The'  name  of  the  agent  therein  and  in 
charge  thereof  and  upon  whom  process  against 
the  corporation  may  be  served,  in  accordance 
with  the  provisions  of  this  act. 

4.  The  principal  purpose  or  purposes  for 
which  the  company  may  be  formed,  and  such 
subsidiary  purposes  and  special  powers  in  con- 
nection with  the  principal  purpose  or  purposes 
as  the  incorporators  may  see  fit  to  insert  therein, 
in  accordance  with  the  provisions  of  this  act. 


*  It  was  thoug'ht  wise  to  encourage  the  formation  of  corpora- 
tions wishing  to  do  a  sound  conservative  business,  and  through 
publicity  to  discourage  the  purely  speculative  ones.  The  full 
statements  required  in  the  certificate  of  incorporation,  which  is  ac- 
cessible to  any  person,  would  in  very  many  cases  make  clear  to 
investors  and  the  public  the  nature  of  the  business  and  the  protec- 
tion afforded  shareholders,  and  v/ould  warn  careful  people  against 
risks. 

274 


New  York  Companies'  Act 

5.  The  amount  of  the  total  authorized  capital 
stock  of  the  corporation,  which  shall  not  be  less 
than  one  thousand  dollars. 

6.  The  number  of  shares  into  which  the 
same  is  divided,  and  the  par  value  of  each  share, 
to  be  not  less  than  ten  dollars  nor  more  than 
one  thousand  dollars. 

7.  The  amount  of  capital  stock  which  is  sub- 
scribed by  the  incorporators,  which  shall  not  be 
less  than  one  thousand  dollars  in  all,  nor  less 
than  one  share  for  any  one. 

8.  If  there  be  more  than  one  class  of  stock, 
a  description  of  the  respective  classes  with  the 
terms  upon  which  the  respective  classes  are 
created. 

9.  The  names  and  post  office  addresses  of 
the  incorporators,  not  the  registered  office,  and 
the  number  of  shares  subscribed  by  each,  to- 
gether with  the  designation  of  the  kind  of 
shares  subscribed. 

10.  The  period  of  duration  of  the  company, 
limited  or  unlimited. 

The  certificate  of  incorporation  mav  con- 
tain any  provision  not  inconsistent  with  this 
act,  which  the  incorporators  may  choose  to 
insert  for  the  regulation  of  the  business  and  for 
the  conduct  of  the  affairs  of  the  corporation, 
and  must  contain  all  the  provisions  creating, 
defining,  limiting  and  regulating  the  powers  of 
the  company,  the  directors  and  stockholders,  and 
of  any  class  or  classes  of  stockholders,   or  any 

275 


The  Trust  Problem 

right  or  rights  of  specific  stockholders.  No  pro- 
vision creating,  defining,  differentiating,  limit- 
ing and  regulating  the  powers  of  the  corpora- 
tion, the  directors,  the  stockholders,  or  any  class 
or  classes  of  stockholders,  shall  be  valid  unless 
inserted  in  the  certificate  of  incorporation  or  in 
an  amendment  thereof. 

The  certificate  of  incorporation  must  be  exe- 
cuted by  natural  male  persons  who  must  be  of 
full  age,  but  without  restriction  as  to  nation- 
ality, citizenship,  or  residence. 

The  certificate  of  incorporation  shall  be 
proved  or  acknowledged  as  required  for  deeds 
of  real  estate,  and  filed  in  the  office  of  the 
Secretary  of  State.  Said  certificate  or  a  copy 
thereof  duly  certified  by  the  Secretary  of  State 
shall  be  evidence  in  all  courts  and  places.  A 
copy  of  the  certificate  must  also  be  kept  in  the 
registered  ofiice  of  the  company,  and  a  copy 
must  be  furnished  by  the  registered  agent  to  any 
person  demanding  the  same,  on  payment  of  a 
charge  of  not  more  than  one  dollar. 

Incorporation  Fees  * 

On  filing  the  certificate  of  incorporation  the 
incorporators  shall  pay  the  Secretary  of  State 
suitable  fees  for  the  use  of  the  State. 

*  These  fees  are  placed  at  the  rates  now  paid  in  New  Jersey. 
276 


New  York  Companies'  Act 


Amendment  of  Certificate  * 

Every  corporation  organized  under  this  act 
may  change  the  nature  of  its  business,  change 
its  name,  increase  its  capital  stock,  decrease  its 
capital  stock,  change  the  par  value  of  the  shares 
of  its  capital  stock,  change  the  location  of  its 
registered  office  in  this  State,  extend  its  corpo- 
rate existence,  create  one  or  more  classes  of  pre- 
ferred stock,  and  make  such  other  amendment, 
change  or  alteration  as  may  be  desired,  in  the 
general  manner  provided  in  the  New  Jersey 
law,  except  that  it  is  provided,  that  such  cer- 
tificate of  amendment,  change  or  alteration  shall 
contain  only  such  provision  as  it  would  be  law- 
ful and  proper  to  insert  in  an  original  certifi- 
cate of  incorporation  made  at  the  time  of  mak- 
ing such  amendment  ;  and  provided  further 
that  in  case  the  corporation  by  such  amendment 
proposes  to  undertake  business  which  is  not  of 
the  same  general  character  as  that  provided  in 
the  original  certificate,  or  creates  one  or  more 
new  classes  of  stock,  or  gives  to  certain  classes 
of  stock  or  bonds  new  privileges,  or  increases 
the  amount  of  the  capital  stock,  a  vote  of  four- 
fifths  of  each  class  shall  be  required,  and  any 
dissenting   stockholder  may  declare   his  dissent 

*  While  the  interests  of  minority  stockholders  have  been  fully 
protected  by  requiring  a  four-fifths  vote  and  the  purchase  for  cash 
at  an  appraised  valuation  of  the  stock  of  dissenting  stockholders, 
it  is  recognized  that  a  few  ought  not  to  be  permitted  to  block  the 
plans  of  a  large  majority. 

277 


The  Trust  Problem 

in  writing  at  the  meeting  called  for  the  purpose 
of  amendment,  and  may  sell  to  the  company 
and  the  company  shall  buy  for  cash  his  holdings 
of  stock  at  a  valuation  appraised  in  the  manner 
provided  for  dissenting  stockholders  in  case  of 
merger  or  consolidation  of  companies.  If  such 
dissent  is  declared  in  writing  at  the  meeting,  the 
subsequent  proceedings  for  appraisement  and 
purchase  may  be  enforced  at  the  instance  of 
either  party. 

Reincorporation  under  Act  * 

Any  company  in  this  State  or  any  foreign 
corporation,  whether  organized  under  special 
charter  or  under  a  general  law,  which  would  be 
qualified  to  organize  under  this  act,  may,  by 
complying  with  the  procedure  in  the  foregoing 
section,  and  stating  also  the  facts,  and  giving 
the  information  necessary  to  be  contained  in  an 
original  certificate  of  incorporation  under  this 
act,  be  registered  and  incorporated  under  this 
act,  and  from  the  date  of  filing  said  certificate, 
this  act  shall  apply.  A  domestic  corporation 
reorganizing  under  this  act  will  be  exempt  from 
payment  of  incorporation  fees. 

*  The  intention  was  to  encourage  forei(?n  corporations,  wishing- 
to  do  a  conservative  business,  and  domestic  corporations  of  like 
character,  to  reincorporate  under  this  Act.  This  section  would 
make  the  process  a  very  simple  one. 


27S 


New  York  Companies'  Act 


Act  Optional'^ 

All  companies  existing  at  the  coming  into 
force  of  this  act,  and  all  companies  hereafter 
organized  under  the  present  business  corporation 
laws,  unless  thev  elect  to  put  themselves  under 
the  provisions  of  this  act  in  the  m.anner  pre- 
scribed in  the  preceding  sections,  shall  remain 
subject  to  the  other  corporation  laws  relating  to 
them,  as  if  this  act  had  not  been  passed. 


Directors 

No  by-laws  adopted  bv  the  board  of  directors 
regulating  the  election  of  directors  or  officers 
shall  be  valid,  unless  a  copy  thereof  shall  be  de- 
livered or  mailed  to  each  stockholder  of  record 
at  least  thirty  days  before  such  election. 

Every  stockholder  shall  be  entitled  to  receive, 
and  every  corporation  by  its  officers  and  board 
of  directors  shall  be  bound  to  furnish  any  stock- 
holder upon  request,  at  the  expense  of  the  cor- 
poration, a  copv  of  the  certificate  of  incorpora- 
tion and  of  the  by-laws. 

Any  corporation  organized  under  this  act  may 
classify   its   directors  in  respect  to  the  time  for 

*  The  act  was  to  be  an  optional  one.  A  radical  revision  of  a 
general  corporation  act,  without  due  warning,  could  not  fail  to 
woric  injustice  in  many  cases.  A  good  law  which  should  encour- 
age sound  business  v,-ould  throw  discredit  upon  unsound  methods. 
Later,  other  acts  might,  with  due  warning,  be  repealed. 

279 


The  Trust  Problem 

which  they  may  hold  office,  the  several  classes, 
however,  to  be,  as  nearly  as  is  numerically  pos- 
sible, equal  in  number  and  elected  for  different 
terms.      Provided, 

1.  That  no  class  shall  be  elected  for  a  period 
shorter  than  one  year  except  at  the  first  election, 
for  the  first  year,  or  for  more  than  live  years, 
and 

2.  That  the  term  of  office  of  at  least  one 
class  shall  expire  each  year. 

Any  corporation  which  shall  have  more  than 
one  kind  of  stock,  by  making  suitable  provision 
in  its  certificate  of  incorporation,  may  confer 
the  right  to  choose  the  directors  upon  the  stock- 
holders of  any  class  or  classes,  or  upon  the 
bondholders,  to  the  exclusion  of  others,  subject, 
in  case  this  power  is  granted  by  amendment,  to 
the  right  of  minority  stockholders  provided  in 
the  previous  section  regarding  amendments  to 
the  certificate  of  incorporation.  * 


Duties  of  Directors  Regarding  Elections 

No  stock  shall  be  voted  on  at  any  election 
which  has  been  transferred  on  the  books  of  the 
corporation  within  twenty  days  preceding  such 
election  ;   nor  shall  any  stock  which  has  been 

*  Through  the  classification  of  directors,  incorporators  at  times 
extend  their  power  through  a  long  series  of  years.  These  provi- 
sions, it  is  thought,  would  prevent  many  such  abuses,  while  retain- 
ing the  benefits  of  classification. 

2  So 


New  York  Companies'  Act 

issued,   whether    original    or    otherwise,  within 
twenty  days  of  the  said  election,  be  voted,  upon. 

The  directors  of  every  company  organized 
under  this  act  shall  cause  the  registered  agent, 
or  other  transfer  agent  designated  by  them  as 
having  charge  of  the  said  books,  to  make,  at 
least  ten  days  before  every  election  after  the  first 
election,  a  full,  true  and  complete  list,  arranged 
in  alphabetical  order,  of  all  the  stockholders 
entitled  to  vote  at  the  ensuing  election,  with  the 
post  office  addresses,  not  the  registered  office  of 
the  corporation,  of  each,  and  the  number  of 
shares  of  each  kind  of  stock  held  by  each,  which 
list  shall,  at  all  times  during  the  usual  business 
hours,  be  kept  at  such  registered  office  open  to 
examination  by  any  stockholder. 

The  board  of  directors  shall  produce  at  the 
time  and  place  of  every  election  of  directors, 
such  books  and  such  list,  there  to  remain  during 
the  election.  A  copy  of  such  list  shall  be  mailed 
to  any  stockholder  within  five  days  after  his 
request  is  received,  upon  payment  in  advance  of 
cost  of  copying  at  not  over  ten  cents  per  folio 
of  one  hundred  words. 

The  neglect  or  failure  of  the  said  directors  of 
a  corporation  with  a  capital  stock  of  five  hun- 
dred thousand  dollars  or  upwards  to  cause  the 
said  books  so  to  be  kept,  or  to  cause  the  said 
list  to  be  so  made  and  filed,  or  to  produce  the 
said  books  or  said  list  at  the  time  of  any  election, 
shall   render   them    ineligible  to    hold   office  as 

2S1 


The  Trust  Problem 

directors,  or  any  other  office  in  the  company  for 
the  period  of  one  year  thereafter.  *  In  addition 
to  the  penalty  above  named  for  failure  the  sum 
of  one  hundred  dollars  each  may  be  collected 
from  any  or  all  of  the  directors  at  the  suit  of 
any  stockholder,  for  his  own  use.  Delinquent 
directors  of  corporations  with  a  capital  stock  of 
less  than  five  hundred  thousand  dollars  shall  be 
subject  to  the  last  named  penalty  only. 


Officers  \ 

Besides  the  usual  officers  an  auditor  or  audi- 
tors shall  be  chosen  by  ballot  by  the  stock- 
holders at  their  annual  meeting,  and  no  person 
or  firm  or  corporation,  a  member,  director  or 
officer  of  which  is  a  director  of  the  company  to 
be  audited  shall  be  eligible.  Corporations 
organized  under  this  act  with  a  capital  stock  of 
one  hundred  thousand  dollars  or  upwards,  must 
select  as  auditor  or  auditors  a  person,  firm  or 
corporation  duly  qualified  and  engaged  in  the 
practice  of  public  accounting  and  auditing  in 
this  state.      And  the  auditor  or  auditors  selected 

*  This  penalty  was  introduced  in  iqoo  into  the  Corporation  Law 
of  New  Jersey,  and  has  already  proved  very  effective  in  preventing' 
negligreiice  in  carrying  out  the  provisions  of  that  law. 

+  The  provisions  re,i=carding:  auditors  are  intended  to  protect 
shareholders  against  misuse  of  power  by  directors.  Every  effort 
is  made  to  identify  the  interests  of  auditorsand  shareholders.  The 
provisions  regarding  bonds  of  auditors  will  make  their  responsibil- 
ity a  real  one.  The  further  provisions  regarding  officers  are  like- 
wise needed  to  hold  them  responsible  to  shareholders. 

282 


New  York  Companies'  Act 

by  a  corporation  whose  capital  stock  amounts  in 
all  to  one  million  dollars  or  more  must  have  his 
or  their  financial  responsibility  secured  by  a  bond 
of  fifty  thousand  dollars  of  some  surety  company 
authorized  to  do  business  under  the  insurance 
laws  of  this  state  ;  and  for  a  corporation  whose 
capital  stock  is  less  than  one  million  dollars  by 
a  bond  amounting  to  at  least  five  per  centum  of 
the  capital  stock  and  approved  by  the  share- 
holders either  at  a  meeting,  or  through  a  com- 
mittee selected  for  this  purpose.  The  above 
provisions  regarding  bonds  may  be  waived  by  the 
written  consent  of  every  shareholder. 

Corporations  with  five  hundred  thousand  dol- 
lars capital  stock  or  upwards  must  appoint  a 
general  counsel,  who  shall  be  counted  in  the  list 
of  officers. 

Any  stockholder  shall  be  entitled  upon  pay- 
ment of  cost  of  copying  at  not  over  ten  cents  a 
folio  of  one  hundred  words,  to  a  statement  at 
any  time  of  all  salaries  paid  to  any  ofScer  or 
officers  of  the  corporation,  together  with  a  state- 
ment of  all  contracts  or  agreements  in  which 
any  officer  of  the  corporation  may  be  interested 
either  as  a  contracting  party  with  the  corporation 
or  as  an  officer  or  stockholder  in  any  other  cor- 
poration contracting  with  the  company. 

The  salaries  of  the  officers  shall  be  fixed  at 
the  annual  meeting  unless  the  articles  of  incor- 
poration provide  otherwise.  In  case,  however, 
salaries  shall  be  increased  at  any  time  by  the 

283 


The  Trust  Problem 

board  of  directors  under  provision  of  the  articles 
of  incorporation,  report  thereof  must  be  made  at 
the  next  annual  meeting  to  the  stockholders  and 
laid  before  them  for  ratification.  Their  action 
shall  be  conclusive  in  all  particulars. 

If  the  number  of  directors  is  increased  be- 
tween annual  meetings,  or  by  the  directors,  the 
places  must  be  filled  by  vote  of  the  shareholders. 

If  any  certificate  made,  or  any  public  notice 
given  by  the  ofncers  or  directors  of  any  corpora- 
tion in  pursuance  of  the  provisions  of  this  act, 
shall  be  false  in  any  material  representation,  all 
the  officers  or  directors  who  shall  have  signed 
the  same,  knowing  it  to  be  false,  shall  be  jointly 
and  severally  liable  for  all  the  debts  of  the  cor- 
poration contracted  while  they  v/ere  directors  or 
oiificers  thereof,  as  a  penalty  enforceable  in  the 
courts  of  this  state  onlv. 


Meetings 

The  first  meeting;  and  the  annual  meetings 
of  stockholders  must  be  held  at  the  registered 
office;  directors'  meetings  may  be  held  else- 
where. 

At  the  regular  annual  meeting,  for  which  pro- 
vision must  be  made  in  the  certificate  of  incor- 
poration or  in  the  by-laws,  the  shareholders* 
balance  sheet  prepared  and  certified  by  the  audi- 
tors as  provided  later  must  be  presented  to  the 

2S4 


New  York  Companies'  Act 

shareholders.  If  the  directors  or  other  officers 
of  any  corporation  organized  under  this  act  shall 
fail  or  neglect  to  call  in  the  manner  provided 
by  law  the  annual  stockholders'  meeting  at  the 
time  appointed  in  the  certificate  of  incorporation 
or  in  the  by-laws  and  shall  not  hold  the  same 
accordingly  thereupon,  from  the  time  when  said 
meeting  was  appointed  to  be  held  until  the  meet- 
ing shall  actually  be  held  thereafter,  all  salaries 
of  president,  vice-presidents,  secretary,  treas- 
urer, and  directors  shall  cease  and  determine, 
and  it  shall  be  unlawful  for  any  corporation  or 
its  officers  or  directors  to  pay  directly  or  indi- 
rectly any  salary  or  compensation  to  any  of  the 
above-named  officers  or  to  any  director  for  ser- 
vices rendered  in  the  interim. 

At  the  annual  meeting  any  shareholder  shall 
be  entitled  to  require  from  the  company,  and 
the  directors  shall  be  bound  to  furnish  him 
with  a  copy  of  all  or  any  parts  of  the  directors' 
records  of  meetings. 


Stock  and   Certificates 

If  provided  in  the  articles  of  incorporation, 
preferred  and  common  stock  may  be  issued ;  but 
liability  of  holders  of  all  classes  is  limited  to  the 
payment  for  the  stock  itself  at  par  value.  Bond- 
holders may  be  given  voting  powers  equal  to 
those  of  stockholders. 

285 


The  Trust  Problem 

Every  stockholder  shall  be  entitled  to  receive 
a  certificate  of  stock  signed  by  two  officers  of 
the  corporation.  Every  certificate  of  stock  and 
every  bond  shall  specify  the  amount  of  capital 
stock  authorized  to  be  issued  by  said  corpora- 
tion, the  amount  of  each  class,  if  there  is  more 
than  one  class,  also  the  amount  of  each  class 
issued  for  cash  and  for  other  consideration,  the 
par  value  of  each  share,  and  the  location  of  the 
registered  office  of  the  company,  and  shall  dis- 
close fully  and  fairly  any  qualification  or  restric- 
tion contained  in  the  certificate  of  incorporation 
affecting  the  right  of  the  stockholder,  or  in  case 
of  bonds  of  the  bondholder,  by  way  of  voting 
power  or  otherwise.  * 

Any  corporation  or  individual  countersigning 
the  said  stock  or  bonds,  either  as  transfer  agent 
or  as  registrar  of  the  stock,  shall  be  deemed  to 
guarantee  the  legality  and  regularity  in  all  par- 
ticulars of  the  transfer,  unless  the  countersign 
itself  shall  give  notice  in  clearlv  legible  charac- 
ters that  said  countersigning  agent  limits  or  re- 
fuses responsibility. 

Every  share  of  stock  shall  be  deemed  to  be 
issued  and  shall  be  held  subject  to  the  payment 
of  its  par  value  in  cash,  unless  before  the  issu- 
ance of  said  stock  a  contract  shall  be  filed  in  the 
registered  office  of  the  company  which  shall 
truly  and  fully  disclose  in  detail  the  considera- 

*  A  new  provision.  It  will  be  noted  that  the  certificate  gives 
each  investor  full  information  regarding  his  rights. 

2S6 


New  York  Companies'  Act 

tion  for  which  the  said  stock  is  issued,  whether 
the  same  be  for  property,  services  or  otherwise. 

In  case  any  stock  is  issued  for  consideration 
other  than  cash,  every  share  of  stock  shall  have 
stamped  across  its  face  a  statement  that  stock 
has  been  issued  in  accordance  with  a  contract 
filed  in  the  registered  office  and  the  proportion 
of  shares  of  each  class  so  issued. 

Every  such  contract  so  filed  in  the  registered 
office  shall  truly  and  fully  disclose  the  consider- 
ation for  which  said  stock  is  issued,  the  parties 
to  whom  such  stock  is  issued,  and  the  real 
parties  in  interest.  Such  contract  shall  be  open 
during  regular  office  hours  to  the  inspection  of 
any  one  and  a  copv  thereof  shall  be  furnished 
by  the  registered  agent  of  the  corporation  to  any 
one  requesting  it  and  advancing  the  cost  of 
making  a  copy  thereof,  which  cost  shall  not 
exceed  the  sum  of  ten  cents  per  folio  of  one 
hundred  words. 

In  every  annual  report  made  by  the  company, 
the  amount  of  capital  paid  in  cash  and  the  amount 
otherwise  issued  in  pursuance  of  the  provisions 
of  the  foregoing  sections  shall  be  stated,  together 
with  the  specific  amounts  issued  during  the  two 
years  next  preceding.* 

The  judgment  of  the  board  of  directors  as  to 
the  value  of  the  consideration  other  than  cash 

*  This  provision  is  substantially  that  of  the  law  of  Victoria  and 
in  substance  has  been  adopted  by  the  new  amendment  of  1900  to 
the  Eng-lish  Act.  If  even  fairly  enforced,  it  will  largely  destroy 
the  power  of  the  dishonest  promoter  and  director. 

2S7 


The  Trust  Problem 

thus  received  by  the  company  shall  be  final  and 
conclusive  upon  all  parties,  provided,  that  all 
the  provisions  of  this  act  relating  thereto  be 
fully  carried  out,  and  that  the  contracts  fairly 
and  fully  disclose  the  real  nature  of  the  bargain 
thus  recorded.* 

Where  the  whole  capital  of  the  corporation 
shall  not  have  been  paid  in,  and  the  capital  paid 
shall  be  insufficient  to  satisfy  its  debts  and  obli- 
gations, each  stockholder  shall  be  bound  to  pav 
on  each  share  held  by  him  the  sum  necessary  to 
complete  the  amount  of  such  share,  as  fixed  bv 
the  charter  of  the  corporation,  or  such  propor- 
tion of  that  sum  as  shall  be  required  to  satisfy 
such  debts  and  obligations. 

No  loan  of  money  shall  be  made  to  any 
stockholder  to  enable  such  stockholder  to  with- 
draw in  effect  any  part  of  the  money  paid  in  by 
him  on  his  stock ;  y  and  if  any  such  loan  be 
made,  the  officers  who  make  it  or  assent  to  it 
shall  be  jointly  and  severally  liable  to  the  extent 
of  such  loan  and  interest  for  all  the  debts  of  the 


*  The  limitation  of  liability  of  shareholders  and  the  acceptance 

of  the  judg-ment  of  directors  as  to  values  of  property  are  very  lib- 
eral provisions.  Under  present  laws  the  practice  is  much  the  same 
as  it  would  seem  to  be  under  this  bill  so  far  as  stock-watering  goes, 
but  the  provisions  of  this  bill  regarding  publicity  would  largely 
remove  the  temptation  to  water  stock  and  would  render  the  prac- 
tice innocuous  if  it  Vv'ere  continued.  Moreover,  when  there  is  dan- 
ger arising  from  a  failure  of  judgment  or  a  misunderstanding  on 
the  part  of  directors,  the  more  conservative  and  conscientious  men 
often  refuse  such  positions,  thus  putting  the  management  of  our 
corporations  into  the  hands  of  the  reckless  and  unscrupulous.  This 
bill  tries  to  recognize  actual  business  conditions,  and  not  to  put 
penalties  upon  honesty. 

t  A  not  uncommon  practice  now. 

2S8 


New  York  Companies'  Act 

corporation  until  the  repayment  with  interest  of 
the  sum  so  loaned. 


Penalty  for  Delinquent  Officials 

The  president  and  secretar}%  or  treasurer, 
upon  the  payment  of  the  amount  of  capital 
subscribed  in  the  certificate  of  incorporation, 
whether  up  to  the  amount  authorized  by  its  cer- 
tificate or  in  addition  thereto,  if  increased  in  the 
manner  provided  by  this  act,  shall  make  a  cer- 
tificate stating,  in  addition  to  the  requirements 
of  section  eighteen  of  this  act,  the  amount  of 
capital  so  paid,  whether  paid  in  cash  or  other- 
wise; the  total  amount  of  capital,  if  any,  pre- 
viously paid  in  and  reported,  with  the  date  of 
such  report,  and  also  stating  with  regard  to  any 
such  additional  stock  thus  issued  for  considera- 
tion otherwise  than  cash,  the  date  of  filino;  the 
contract  determining  such  issue.  This  certifi- 
cate shall  be  signed  and  sworn  to  by  the  presi- 
dent and  secretary  or  treasurer,  and  the  directors 
shall,  within  ten  days,  cause  the  certificate  to 
be  filed  in  the  ofiice  of  the  Secretary  of  State 
and  a  copy  thereof  in  the  registered  office  of  the 
company.  In  case  of  their  failure  so  to  do,  the 
directors  of  the  company  whose  terms  shall  ex- 
pire at  the  next  annual  election  shall  each  and 
all  be  disqualified  for  a  period  of  one  year  from 
being  elected  or  serving  as  directors  or  officers 

19  289 


The  Trust  Problem 

of  the  corporation ;  but  a  director  may  avoid  the 
penalty  by  showing  his  efforts  to  have  the  certi- 
ficate filed  and  furnishing  the  information. 

If  any  of  the  said  officers  or  directors  shall 
neglect  or  refuse  to  perform  the  duties  required 
of  them  in  section  seventy-five  for  ten  days  after 
being  requested  in  w^riting  so  to  do  by  any  cred- 
itor or  stockholder  of  the  corporation,  the  di- 
rectors so  neglecting  or  refusing  shall  be  jointly 
or  severally  liable  for  all  the  debts  of  the  com- 
pany contracted  before  the  filing  of  such  certifi- 
cate and  until  the  same  shall  be  filed. 


Power:;  of  Corporation  to  Buy  and  Sell  Stock 

Any  corporation,  if  proper  provision  is  made 
in  the  certificate  of  corporation,  shall  have  the 
power  to  purchase,  hold,  sell,  assign,  transfer, 
mortgage,  pledge  or  otherwise  dispose  of  the 
stock  or  securities  of  other  corporations,  and, 
while  the  owner  thereof,  to  vote  upon  them  to 
the  same  extent  as  natural  persons  might  or 
could  do. 

Every  corporation  shall  have  the  power  to 
purchase  or  otherwise  acquire  its  own  capital 
stock,  but  only  out  of  its  surplus  earnings  or 
in  payment  or  satisfaction  of  any  debt  due  the 
company  to  such  extent  and  manner  and  upon 
such  terms  as  the  board  of  directors  by  two- 
thirds  vote  shall  determine,  and  to  reissue  the 

290 


New  York  Companies'  Act 

said  stock  so  acquired.  Anv  such  purchase  or 
reissue  of  stock  together  with  price  and  consid- 
eration paid  and  for  which  the  reissued  stock  is 
sold  shall  be  noted  in  the  annual  report.* 


Dividends 

The  provisions  for  the  payment  of  dividends 
are  the  usual  ones  providing  that  they  must  be 
paid  only  from  profits,  and  holding  directors 
liable  for  misuse  of  power. 


Promotion  f 


Every 


prospectus,  announcement,  or  adver- 
tisement of  whatever  kind,  howsoever  published, 
printed,  circulated,  or  issued  after  the  com- 
mencement oif  this  act,  provided  the  same  is 
published  or  issued  with  a  view  of  obtaining 
subscriptions  for  shares  or  bonds  in  a  company 
organized  under  this  act,  or  directly  or  indirectly 

*  These  provisions  have  been  thougfht  danjjerous.  They  migfht 
be  so, if  it  were  not  for  other  provisions  of  the  act  regarding:  pub- 
licity and  the  power  of  stockholders  to  know  and  control  the  acts 
of  directors.  With  those  provisions  the  danger  is  removed,  and 
these  provisions  become  a  safeguard  against  speculative  or  ill-dis- 
posed stockholders. 

t  These  rigid  provisions  regarding  promotion  and  auditing  are 
no  more  than  are  required  in  some  other  countries.  The  forms  for 
reports  have  been  passed  upon  by  competent  auditors,  and  all  agree 
that  no  conservative,  well-managed  company  can  properly  object 
to  such  reports  going  to  stockholders.  No  proper  business  secrets 
are  disclosed.  A  sound  company,  and  a  promoter  who  is  not  pri- 
marily a  speculator,  will  rarely  be  injured  by  any  of  these  provi- 
sions, while  the  provisions  are  needed  to  block  evil  practices  which 
are  now  working  grave  injury  to  sound  business. 

291 


The  Trust  Problem 

inviting  persons  to  subscribe  for  shares  or  bonds 
in  a  company  so  organized  shall  specify : 

1.  The  names  and  addresses  of  the  promoters 
and  directors  and  the  number  of  shares  held  or 
agreed  to  be  taken  up  by  them  respectively  and 
whether  wholly  paid  up  or  partly  paid  up  and 
the  consideration,  remuneration,  or  reward,  if 
any,  to  the  incorporators,  directors,  promoters, 
underwriters  or  others  respectively  for  becom- 
ing incorporators,  directors,  promoters,  under- 
writers or  members  of  the  company ; 

2.  The  date  and  the  names  of  the  parties  to 
any  contract  directly  or  indirectly  relating  to 
the  company  or  to  the  promotion  thereof  en 
tered  into  by  the  company  or  the  promoters, 
directors,  or  trustees  thereof  or  any  person  act- 
ing as  a  trustee  or  agent  for  or  on  behalf  of 
them  or  any  of  them,  and  whether  such  con- 
tract be  entered  into  with  the  promoters  or 
directors  or  any  of  them  or  any  other  person 
whomsoever  within  two  years  before  the  issue 
of  such  prospectus  whether  subject  to  adoption 
by  the  directors  of  the  company  or  otherwise, 
and  shall  also  state  a  place  where  such  contract 
if  in  writing  may  be  inspected,  which  place 
must  be  the  registered  office  of  the  company, 
if  that  is  yet  organized,  proviied  that  this  sub- 
division of  this  section  shall  not  apply  to  a  con- 
tract entered  into  by  the  company  after  its  in- 
corporation in  the  ordinary  course  of  the  business 
carried    on   by  the    company,    unless    stock   or 

292 


New  York  Companies'  Act 

bonds  are  issued  or  to  be  issued  as  a  considera- 
tion; 

3.  The  contents  of  the  articles  of  incorpora- 
tion, if  any,  with  the  names  and  addresses  of 
the  subscribers  thereto  and  the  number  of  shares 
subscribed  for  by  them  respectively,  together 
with  the  number  of  shares  fixed  as  the  qualifi- 
cation of  a  director. 

4.  The  consideration  paid  or  to  be  paid,  and 
if  so,  how  and  when,  for  any  property  pur- 
chased or  acquired  or  to  be  purchased  or  ac- 
quired by  the  company  and  from  whom  and 
when  purchased  or  acquired,  with  a  brief  de- 
scription of  the  nature  of  the  property  and  its 
location  if  physical  property,  and  whether  any 
part  and  if  so,  how  much  of  such  consideration 
money  is  for  good  will; 

5.  The  amount,  if  any,  payable  as  commis- 
sion, bonus  or  reward  for  subscribing  or  agreeing 
to  subscribe  or  procuring  or  agreeing  to  procure 
subscriptions  for  or  for  underwriting  or  guaran- 
teeing the  sale  of  any  shares  in  the  company  or 
the  rate  of  any  such  commission. 

6.  The  minimum  subscription  upon  which 
the  directors  will  allot  the  shares  subscribed, 
and  begin  business; 

7.  The  minimum  amount  payable  on  appli- 
cation and  allotment  on  each  share; 

8.  The  number  and  am.ount  of  shares  issued 
or  agreed  to  be  issued  as  fully  or  partly  paid  up 
otherwise  than  in  m.oney,  and  in  the  latter  case 

293 


The  Trust  Problem 

the  extent  to  which  they  are  so  paid  up,  and  in 
either  case  the  consideration  for  which  and  the 
person  or  persons  to  whom  such  shares  have  been 
issued  or  are  proposed  or  intended  to  be  issued; 

9.  The  names  and  addresses  of  the  vendors 
of  any  property  purchased  or  acquired  by  the 
company  or  to  be  so  purchased  or  acquired, 
which  is  to  be  paid  for  wholly  or  partly  out  of 
the  proceeds  of  the  issue  offered  for  subscription 
by  the  prospectus  or  the  purchase  or  acquisition 
of  which  has  not  been  completed  at  the  date  of 
publication  of  the  prospectus  and  where  there 
is  more  than  one  vendor  or  the  company  is  a 
sub-purchaser,  the  amount  payable  in  money  or 
shares  to  each  vendor; 

10.  The  amount  or  estimated  amount  of  pre- 
liminary expenses; 

11.  The  amount  paid  or  intended  to  be  paid 
in  cash  or  shares  or  otherwise,  to  or  for  any 
promoter  and  the  consideration  therefor; 

12.  The  amount  intended  to  be  reserved  for 
working  capital ; 

13.  The  proposed  application  of  the  proceeds 
of  the  issue  of  the  shares;   and 

14.  The  names  and  addresses  of  the  auditors 
or  intended  auditors,  if  any,  of  the  company. 

A  prospectus  which  does  not  comply  with  the 
preceding  section  shall  be  deemed  to  be  fraudu- 
lent on  the  part  of  the  responsible  parties  know- 
ingly issuing  the  same.* 

*  Parties  are  fully  defined  in  bill. 
294 


New  York  Companies'  Act 

Every  person  taking  shares  on  the  faith  of 
such  prospectus  unless  he  had  actual  notice  of 
the  particulars  omitted  from  the  prospectus  shall, 
in  addition  to  any  other  remedy  he  may  have, 
be  entitled  to  sue  for  rescission  of  his  contract 
to  take  shares. 

In  the  event  of  non-compliance  with  any  of 
the  requirements  of  this  act  with  respect  to  a 
prospectus,  any  person  aggrieved  shall  be  en- 
titled to  compensation  from  any  person  know- 
ingly issuing  the  same,  unless  in  ways  enumer- 
ated in  the  act  he  can  fully  exonerate  himself. 
Provisions  are  fully  made  also  to  prevent  fraud 
through  the  acts  of  irresponsible  persons  acting 
as  virtual  agents. 

This  section  shall  not  apply  to  a  circular  or 
notice  issued  to  and  inviting  only  existing  mem- 
bers of  a  company  to  subscribe  for  further 
shares,  but,  subject  as  aforesaid,  this  section 
shall  apply  to  any  prospectus  whether  issued 
on  or  with  reference  to  the  formation  of  a  com- 
pany or  subsequently  ;   provided  that 

1.  The  requirements  as  to  the  certificate  of 
incorporation  and  the  qualification  of  directors, 
the  names  and  addresses  of  directors  and  the 
shares  held  or  to  be  taken  by  them,  and  the 
amount  or  estimated  amount  of  preliminary  ex- 
penses shall  not  apply  in  the  case  of  a  pros- 
pectus published  more  than  one  year  after  the 
formation  of  the  company ;  and 

2.  In    the    case    of   a   prospectus   published 

295 


The  Trust  Problem 

more  than  one  year  after  the  formation  of  a 
company,  the  obligation  to  disclose  all  material 
contracts  and  facts  shall  be  limited  to  a  period 
of  one  year  immediately  preceding  the  publica- 
tion of  the  prospectus. 

For  the  purpose  of  this  act  every  contract  and 
fact  is  material  which  would  influence  the  judg- 
ment of  a  prudent  investor  in  determining 
whether  he  would  subscribe  for  the  shares 
offered  by  the  prospectus. 

Any  condition  requiring  an  applicant  for 
shares  to  waive,  and  any  agreement  to  waive, 
due  compliance  with  this  act  or  purporting  to 
affect  him  with  notice  of  any  document  or  mat- 
ter not  specifically  referred  to  in  the  prospectus 
shall  be  void. 

Every  promoter  is  in  a  fiduciary  relation  to- 
ward a  company  which  he  is  engaged  in  pro- 
moting, and  consequently  he  must  make  full 
disclosure  as  provided  in  the  bill  of  his  relations 
to  and  dealings  with  the  company. 


Balance  Sheet  * 

Every   company  and   the   directors  and  man- 
agers thereof — 

*  It  will  be  observed  that  this  balance  sheet  is  not  published,  but 
is  f^iven  to  the  shareholders.  Of  course,  in  the  case  of  larg^e  com- 
panies whose  stocks  are  on  the  stock  market,  this  is  equivalent  to 
publication  ;  while  a  small  private  corporation  with  but  few  mem- 
bers would  be  able  to  confine  knowledsfe  of  its  affairs  to  its  few 
stockholders  and  the  proper  officers  of  the  state. 

296 


New  York  Companies'  Act 

1.  Shall  cause  to  be  kept  proper  books  of 
account  in  which  shall  be  kept  full,  true  and 
complete  accounts  of  the  affairs  and  transactions 
of  the  company,  and 

2.  Shall  once  at  least  in  each  year  cause  the 
accounts  of  the  company  to  be  balanced  and  a 
balance-sheet  in  this  act  referred  to  as  the  share- 
holders' balance-sheet  to  be  prepared,  which 
balance-sheet  after  being  duly  audited  shall  be 
laid  before  the  members  of  the  company  in  next 
general  meeting;   and 

3.  Shall  cause  a  copy  of  such  shareholders' 
balance-sheet  so  audited  to  be  sent  to  the  regis- 
tered address  of  every  member  of  the  company 
at  least  seven  days  before  the  meeting  at  which 
it  is  to  be  laid  before  the  members  of  the  com- 
pany and  a  copy  to  be  deposited  at  the  registered 
office  of  the  company  for  the  inspection  of  the 
members  of  the  company  during  a  period  of  at 
least  seven  days  before  that  meeting,  and  every 
shareholder  in  the  company  or  any  person  act- 
ing in  his  behalf  shall  be  entitled  to  other  copies 
thereof  on  payment  of  twenty-five  cents  each. 

The  shareholders'  balance-sheet  shall  be  in 
such  form  as  is  directed  by  the  certificate  of 
incorporation  or  the  by-laws  or  by  a  resolution 
of  the  company  and  shall   show  in  every  case — 

I.  The  amount  of  share  capital  authorized, 
the  amount  issued,  and  the  amount  paid  up 
thereon,  distinguishing  the  amount  of  share  cap- 
ital   paid   up    in   money   and   the   amount    paid 

297 


The  Trust  Problem 

otherwise  than  in  money,  with  statement  of 
nature  of  the  consideration  and  the  arrears  of 
calls  due,  and  the  specific  amounts  issued  during 
the  two  years  next  preceding; 

2.  The  amount  of  debts  due  by  the  com- 
pany, specifying  the  security  if  any,  allocated 
for  each  debt  and  distinguishing  the  amount  of 
mortgages,  debentures,  and  floating  charges 
against  the  general  assets  of  the  company,  the 
amount  of  the  reserve  fund,  if  any,  and  the 
amount  of  any  contingent  liabilities. 

3.  The  amount  of  all  current  assets,  after 
making  a  proper  deduction  for  debts  considered 
to  be  bad  or  doubtful;  any  debts  due  from 
directors  or  other  officers  to  be  separately  stated. 

4.  Whether  the  assets  other  than  debts  due 
to  the  company  are  taken  at  cost  price  or  by 
valuation,  or  on  what  other  basis  they  are  reck- 
oned, and  whether  any  and  if  so  what  amount 
of  percentage  has  been  written  off  and  what 
other  provision,  if  any,  has  been  made  for  de- 
preciation. 

5.  The  gross  amount  of  the  year's  earnings, 
the  deductions  made  from  the  same  for  fixed 
charges  of  interest  and  taxes  and  the  surplus, 
if  any,  available  for  dividends. 

6.  The  amount  by  which  the  gross  value  of 
the  assets  of  the  company  has  been  increased 
since  the  last  balance-sheet  in  consequence  of 
any  increase  in  the  valuation  of  real  or  personal 
property  belonging  to  the  company. 

29S 


New  York  Companies'  Act 

7.  The  amount  of  property,  If  any,  for  which 
shares  were  issued,  which  has  been  sold  since 
the  last  report  with  a  full  disclosure  of  the  con- 
sideration therefor  in  detail,  the  parties  to  the 
contract  and  the  real  parties  in  interest. 

The  shareholders'  balance-sheet  shall  be  ac- 
companied by  a  certificate  signed  by  two  or 
more  of  the  directors  on  behalf  of  the  board 
stating  that  in  their  opinion  the  balance-sheet  is 
drawn  up  so  as  to  exhibit  a  correct  view  of  the 
state  of  the  company's  affairs  and  that  in  their 
opinion  the  statement  is  correct. 

A  copy  of  the  balance-sheet  shall  be  sent  to 
each  director  at  least  ten  days  before  the  annual 
meeting,  and  unless  he  formally  at  or  before 
the  meeting  makes  statement  to  the  contrary, 
he  shall  be  held  to  have  also  signed  the  report. 


Duties  of  Auditors 

The  auditors  of  every  company : 

1.  Shall  use  reasonable  diligence  with  the 
view  of  ascertaining  that  the  books  of  the  com- 
pany have  been  properly  kept  and  record  cor- 
rectly the  affairs  and  transactions  of  the  com- 
pany; 

2.  Shall  examine  the  shareholders'  balance- 
sheet  and  any  accounts  presented  to  the  members 
of  the  companv,  and  shall  report  in  writing  to 
the  members  of  the  company  when  the  balancer 

299 


The  Trust  Problem 

sheet  is  transmitted,  that  the  balance-sheet  and 
accounts  have  been  drawn  up  in  accordance  with 
the  provisions  of  the  New  York  Companies'  Act, 
and  when  taken  together  with  any  explanations 
attached  thereto,  present  a  correct  view  of  the 
state  of  the  company's  affairs;  or  if  the  auditors 
are  unable  to  make  such  a  report  they  shall  re- 
port in  writing  when  the  balance-sheet  is  trans- 
mitted in  what  respects  the  balance-sheet  and 
accounts  fail  to  comply  with  these  requirements, 
and  shall  sign  a  certificate  at  the  foot  of  the  bal- 
ance-sheet stating  whether  or  not  all  their  req- 
uisitions as  auditors,  including  their  requisitions 
with  regard  to  the  private  balance-sheet  herein- 
after mentioned,  have  been  complied  with ;   and 

3.  Shall  report  in  writing  to  the  members  all 
material  information  which  they  have  observed 
or  have  become  acquainted  with  with  regard  to 
the  books,  accounts,  securities,  vouchers,  papers, 
writings  and  documents  examined  by  them,  and 
for  this  purpose  they  shall  at  all  times  have  ac- 
cess to  all  the  books,  accounts,  and  records  of 
the  company  and  to  the  minute  book  and  shall 
be  empowered  to  require  from  the  directors  and 
other  officers  such  information  and  explanation 
as  may  be  necessary  for  the  performance  of  their 
duties. 

If  for  any  reason  it  prove  impossible  for  the 

auditors  to  prepare  their  report  before  the  date 

mentioned  above,  then  th^sy  shall  submit  at  the 

general    meeting   the   reasons  for  their  failure. 

300 


New  York  Companies'  Act 

The  shareholders  shall  then  take  action  and  fix 
a  later  date  at  which  a  report  shall  be  submitted 
either  by  the  said  auditors  or  by  their  successors 
in  office. 

If  the  auditors  or  any  one  of  them  think 
there  is  just  cause  to  disapprove  of  any  part  of 
the  said  accounts  presented  to  the  members  of 
the  company,  they  or  any  one  of  them  may  dis- 
allow any  part  of  the  said  accounts  so  disap- 
proved of  and  shall  report  their  or  his  disap- 
proval in  writing  on  the  accounts  and  balance- 
sheet. 

Every  such  report  and  balance-sheet  shall  be 
read  before  the  company  at  the  next  general 
meeting. 

Any  auditor  who  shall  wilfully  or  through 
gross  negligence  certify  that  any  false  or  frau- 
dulent balance-sheet  or  account  is  correct,  shall 
be  civilly  responsible  to  any  party  injured. 


Private  Balance  Sheet 

The  auditors  of  every  company  before  making 
a  report  pursuant  to  the  last  preceding  section 
shall  require,  and  the  directors  and  president  of 
the  company  shall  without  unnecessary  delay 
supply  to  the  auditors,  a  balance-sheet,  in  this 
act  referred  to  as  the  private  balance-sheet,  giv- 
ing the  details  on  which  the  shareholders*  bal- 
ance-sheet  is   founded    and    showing    amongst 

301 


The  Trust  Problem 

other  things  the  amount  of  deduction,  if  any, 
for  debts  considered  to  be  bad  or  doubtful. 

The  private  balance-sheet  must  be  signed  by 
the  president,  treasurer,  and  by  at  least  two  of 
the  directors  of  the  company  when  there  are 
not  more  than  three  directors,  and  by  three  at 
least  when  there  are  more  than  three  directors. 

The  auditors  may  require  the  directors,  trea- 
surer, and  president  of  the  company  to  supply 
in  writing,  signed  as  hereinbefore  provided,  any 
further  details  or  information  affecting  the  bal- 
ance-sheet or  any  particular  item  comprised 
therein,  and  shall  sign  a  certificate  at  the  foot 
of  the  private  balance-sheet  stating  whether  or 
not  all  their  requisitions  as  auditors  have  been 
complied  with. 

The  private  balance-sheet  shall  not  be  issued 
to  the  members  of  the  company,  but  shall  to- 
gether with  all  such  further  details  and  informa- 
tion as  aforesaid  be  kept  by  the  directors  as  part 
of  the  records  of  the  company. 


Annual  Report 

Every  corporation  organized  under  this  act 
shall  annually  file  in  the  office  of  the  Secretary  of 
State  for  use  of  the  Comptroller  and  other  state 
officials  acting  in  their  official  capacity,  but  not 
for  public  inspection,  and  also  in  the  registered 

302 


New  York  Companies'  Act 

office  of  the  company,  a  report,  which  said  re- 
port shall  be  at  all  times  open  to  the  inspection 
of  the  stockholders,  upon  request,  and  a  copy 
of  such  report  shall  be  furnished  to  any  stock- 
holder by  the  corporation  upon  the  pre-payment 
of  a  reasonable  charge  for  making  the  same, 
which  charge  shall  not  exceed  the  sum  of  ten 
cents  per  folio  of  one  hundred  words. 

Said  report  shall  be  filed  within  three  months 
after  the  first  of  January  in  each  year;  shall  be 
authenticated  by  the  signatures  of  the  president 
and  one  other  officer  of  the  company,  or  by  any 
two  directors  and  shall  contain : 

1.  The  name  of  the  corporation. 

2.  The  location,  town  or  city,  with  street 
and  number,  if  any  there  be,  of  its  registered 
office,  with  the  name  of  the  registered  agent. 

3.  The  names  of  all  the  directors  and  officers 
of  the  company  and  the  date  of  the  expiration 
of  their  terms  of  office. 

4.  The  post  office  address  of  each,  not  the 
registered  office  of  the  company. 

5.  The  character  of  the  business  carried  on 
by  the  company. 

6.  The  location  of  any  and  all  transfer  offices 
within  and  outside  the  state. 

7.  The  last  shareholders'  balance-sheet. 

8.  The  day  appointed  for  the  next  annual 
meeting  of  the  stockholders  for  the  election  of 
directors. 

For  failure  to  file  the  annual  report  the  cor- 

303 


The  Trust  Problem 

poratlon  shall  forfeit  ^300,  and — besides  what 
is  far  more  important — 

If  such  report  be  not  so  made  and  filed  before 
the  time  appointed  for  the  holding  of  the  next 
annual  election  by  the  stockholders,  all  of  the 
directors  of  any  such  domestic  corporation  in 
office  during  the  default  shall  at  the  time  ap- 
pointed for  the  next  election,  and  for  a  period 
of  one  year  thereafter,  be  thereby  rendered  in- 
eligible for  election  or  appointment  to  any  office 
in  the  company  as  directors  or  otherwise. 

But  provision  is  made  to  exempt  a  director 
who  is  not  at  fault,  and  who  makes  personally, 
so  far  as  possible  such  a  report. 

The  Secretary  of  State  shall  upon  application 
furnish  blanks  in  proper  form  and  shall  safely 
keep  in  his  office  all  such  statements,  and  issue 
to  the  corporations  filing  the  same  his  certificate 
therefor. 

Merger  and  Dissolution 

Corporations  may  be  merged;  but  only  on 
vote  of  two-thirds  of  the  stock  of  each  corpora- 
tion, and  any  dissenting  stockholder  is  to  have 
hi?  stock  taken  for  cash  at  an  appraised  valua- 
tion. 

Provision  is  made  for  voluntary  dissolution 
of  corporations. 


304 


New  York  Companies'  Act 


Monopoly  Act  not  Repealed 

Nothing  in  this  act  shall  be  construed  to  re- 
peal any  of  the  provisions  of  the  existing  laws 
of  this  State  regarding  monopoly  or  the  forma- 
tion of  monopolies. 


305 


APPENDIX  E 

SUMMARY  OF  PLAN  OF  WILLIAM 
JENNINGS  BRYAN  FOR  THE 
REGULATION    OF   TRUSTS* 

Congress  should  pass  a  law  providing  that 
no  corporation  organized  in  any  state  should  do 
business  outside  of  the  state  in  which  it  is  or- 
ganized until  it  receives  from  some  power  cre- 
ated by  Congress  a  license  authorizing  it  to  do 
business  outside  of  its  own  state.  Now,  if  the 
corporation  must  come  to  this  body  created  by 
Congress  to  secure  permission  to  do  business 
outside  of  the  state,  then  the  license  can  be 
granted  upon  conditions  which  will,  in  the  first 
place,  prevent  the  watering  of  stock;  in  the 
second  place,  prevent  monopoly  in  any  branch 
of  business,  and,  third,  provide  for  publicity 
as  to  all  of  the  transactions  and  business  of 
the  corporation.  .  .  .  And  then  provide  that 
if  the  law  is  violated  the  license  can  be  re- 
voked.   .    .    . 

If  you  once  establish  the  system  and  re- 
quire the  license,  then  Congress  can,  from  year 
to  year,  add  such  new  conditions  as  may  be 
necessary  for  the  protection  of  the  public  from 

*  Report  of  Chicago  Conference  on  Trusts,  pp.  506,  508. 
306 


Mr.  Bryan's  Plan 

the  greed  and  avarice  of  great  aggregations  of 
wealth.  I  do  not  go  so  far  as  some  do  and  say 
that  there  shall  be  no  private  corporations,  but 
I  say  this,  that  a  corporation  is  created  by  law, 
that  it  is  created  for  the  public  good,  and  that 
it  should  never  be  permitted  to  do  a  thing  that 
is  injurious  to  the  public,  and  that  if  any  cor- 
poration enjoys  any  privileges  to-day  which  are 
hurtful  to  the  public,  those  privileges  ought  to 
be  withdrawn  from  it.  In  other  words,  I  am 
willing  that  we  should  first  see  whether  we  can 
preserve  the  benefits  of  the  corporation  and  take 
from  it  its  possibilities  for  harm. 


307 


APPENDIX   F 

THE    UNITED   STATES   STEEL    COR- 
PORATION 

Since  the  first  edition  of  this  book  was  pub- 
lished, the  United  States  Steel  Corporation  has 
been  organized.  As  this  is  by  far  the  largest 
and  in  many  ways  the  most  important  industrial 
combination  yet  formed,  a  few  facts  regarding 
it  will  be  of  value. 

It  was  organized  February  23,  1901,  in  the 
first  place  with  the  nominal  capital  of  $3,100, 
which  was  shortly  thereafter  increased  to  $1,- 
100,000,000,  of  which  authorized  capital  stock 
;^550,ooo,ooo  was  preferred  and  ;$550,ooo,ooo 
common  stock.  The  charter  is  drawn  in  the 
broad  terms  of  the  New  Jersey  charters,  the 
special  purpose  named  being  the  manufacture  of 
iron,  steel,  and  other  materials,  with  the  right 
to  do  practically  everything  else  which  can  be 
brought  into  connection  with  that  work. 

To  avoid  some  of  the  difficulties  met  with 
by  earlier  large  corporations,  it  is  provided  that 
whenever  all  quarterly  dividends  accrued  upon 
the  preferred  stock  for  previous  quarters  shall 
have  been  paid,  the  board  of  directors  may 
30S 


The  United  States  Steel  Corporation 

declare  dividends  on  the  common  stock  out  of 
any  remaining  surplus  of  net  profits. 

An  act  of  the  legislature  of  the  State  of  New 
Jersey  passed  March  22,  1901,  was,  it  was  sup- 
posed, passed  at  the  instance  of  the  promoters 
of  this  corporation,  in  order  to  enable  them  to 
manage  the  affairs  of  so  great  a  body  without 
being  hampered  by  the  possible  difficulties  of  get- 
ting a  large  meeting  of  stockholders.  The  new 
provision  of  the  law  provides  that  "any  action 
which  theretofore  required  the  consent  of  the 
holders  of  two-thirds  of  the  stock,  at  any  meet- 
ing after  notice  to  them  given,  or  required  their 
consent  in  writing,  to  be  filed,  may  be  taken 
upon  the  consent  of,  and  the  consent  given  and 
filed  by,  the  holders  of  two-thirds  of  the  stock  of 
each  class  represented  at  such  meeting  in  person 
or  by  proxy.'*  Whether  such  a  liberalizing 
provision  would  be  safe  in  case  of  all  corpora- 
tions may  perhaps  be  questioned. 

In  form  this  corporation  resembles  that  of  the 
Federal  Steel  Company  already  explained  in 
Chapter  VII.  The  United  States  Steel  Cor- 
poration has  bought  the  stock  of  its  different 
constituent  companies,  and  controls  these  com- 
panies by  virtue  of  being  practically  the  single 
stockholder,  in  each  case.  The  rates  at  which 
the  stock  of  the  various  constituent  companies 
was  exchanged  for  that  of  the  United  States 
Steel  Corporation,  together  with  the  amounts 
and  increase  of  stock  of  both  kinds,  appear  in 

309 


The  Trust  Problem 

the  following  table,  taken  from  the  review  of 
evidence  in  the  report  of  the  United  States  In- 
dustrial Commission  on  trusts  and  industrial 
combinations.  It  will  be  noted  that  at  first 
seven  companies  entered  the  combination,  and 
that  two  others  were  thereafter  acquired.  It 
will  also  be  noted  from  the  last  paragraph  given 
with  this  table,  in  connection  with  the  Carnegie 
Company,  that  a  large  surplus  seems  to  be  left 
in  the  hands  of  interested  parties  to  acquire 
other  properties. 


Comparison  of  stocks  of  first  constituent  members  of 
United  States  Steel  Corporation  and  shares  given 
in  exchange  therefor: 

(From  circular  letters  issued  by  J.  P.  Morgan  «&  Co.,  and  figures 
verified  by  officials  of  United  States  Steel  Corporation.) 


Name  of 
Company. 

Amount    of 
stock  out- 
standing. 

Number 
shares 
stock  new 
company 
for  every 
100  shares 
old  stock. 

Amount    of    new    stock 
required    to    make  the 
exchange. 

i 

u 

Preferred. 

Common. 

Federal  Steel  Co.: 

Preferred  

Common 

American  Steel  & 
Wire  Co.  : 

Preferred 

Common 

$53,260,900 
46,484,300 

40,000,000 
50,000,000 

no 
4 

ii7i 

i07i 
102  J 

$58,586,990 
1.859,372 

47,000,000 

$49,970,623 

51,250,000 

310 


The  United  States  Steel  Corporation 


Name  of 
Company. 

Amount    of 
stock  out- 
standing-. 

Number 
shares 
stock  new 
company 
for  every 
100  shares 
old  stock. 

Amount    of    new    stock 
required   to    make    the 
exchange. 

i 

c 
0 

Preferred. 

Common. 

National       Tube 
Co.  : 
Preferred 

$40,000,0CO 

40,000,000 

27,000,000 
32,000,000 

18,325,000 
28,000,000 

14,000,000 
19,000,000 

24,500,000 
24,500,000 

125 

8.8 
125 

125 
20 

100 
100 

125 

125 

100 
100 

$50,000,000 
3,520,000 

33,750,000 

Common 

National        Steel 
Co.: 
Preferred 

$50,000,000 

40,000,000 

American        Tin 
Plate  Co. : 
Preferred 

22,906,250 
5,600,000 

14,000,000 

Common 

American      Steel 
Hoop  Co.  : 
Preferred 

35,000,000 

19,000,000 

American     Sheet 
Steel  Co.  : 
Preferred 

24,500,000 


Common 

24,500,000 

Amount    new 
stock     required 
to     make      ex- 

261,722,612 
217,085,900 

269,720,623 
239,984,300 

Present  issues  of 
the  seven  com- 
panies totals 

Increase  in  capi- 
talization     for 
seven     com- 
panies 

44,636,712 

29,736,323 
44,636,712 

Total    increase 
common       and 
preferred  stock, 
seven        com- 
panies             . . 

74,37-;,035 

311 


The  Trust  Problem 


Name  of 
Company. 


Companies  added 
after  Organi- 
zation. 

American  Bridg-e 
Co.: 

Preferred 

Common 

Lake    Superior 
Consolidated 
Iron  Mines: 
Common 


Amount  new 
stock  required. 

Present  issue  for 
two  companies, 
total 


Increase  in  capi- 
talization for 
two  companies. 

Total  increase, 
two  companies. 

Increase  seven 
companies 

Increase, two 
companies 


Total  increase, 
nine  companies. 

Total  increase, 
preferred  and 
common 


Amount  of 
stock  out- 
standing. 


$31,373,800 
30,950,800 


29,887,449 


Number 
shares 
stock  new 
company 
for  every 
100  shares 
old  stock 


Amount  of  new  stock 
required  to  make  the 
exchange. 


Preferred. 


$34,511,180 


40,348,056 


74,859,236 
31,373,800 


43,485,436 


44,636,712 
43,485,436 


,122,148 


Common. 


$32,498,340 


40,348,056 


72,846,396 
60,838,249 


12,008,147 
43,485.436 


55.493,853 
29,736,323 
12,008,147 


41,744,470 
88,122,148 


[29,866,618 


312 


The  United  States  Steel  Corporation 

In  a  circular  letter  issued  by  J.  P.  Morgan 
&  Co.,  March  2,  190 1,  it  was  stated  that  the 
"  bonds  of  the  United  States  Steel  Corporation 
are  to  be  used  only  to  acquire  bonds  and  60  per 
cent,  of  the  stock  of  the  Carnegie  Company.'* 
It  has  been  frequently  stated  on  excellent  author- 
ity, though  not  published  by  the  company,  that 
the  bonds  were  exchanged  at  par,  and  that  Mr. 
Carnegie  received  for  each  ;^  1,000  of  his  Car- 
negie stock,  bonds  at  ;^  1,500.  At  those  rates 
he  would  have  received  for 


Bonds  of  U.  S.  Steel 
Corporation. 

$160,000,000  bonds $160,000,000 

$96,000,000  stock  at  150  in  bonds 144,000,000 


$3041' 


As  this  sum  agrees  exactly  with  the  amount 
of  bonds  issued,  it  seems  a  reasonable  interpre- 
tation. 

It  is  generally  supposed  with  good  reason 
that  most  of  the  remainder  of  the  Carnegie 
stock  was  taken  at  150  preferred  stock,  with  an 
equal  bonus  of  common,  though  some  little  was 
bought  for  ;^i,200  or  ;^  1,300  cash.  Assuming 
all  taken  at  the  first  rate,  and  that  ;^25, 000,000 
cash  was  raised  with  ;^ 25, 000, 000  par  of  pre- 
ferred, with  equal  bonus  of  common,  a  generally 
accepted  and  doubtless  correct  inference,  the 
remainder  of  the  Carnegie  holdings  and  the 
cash  would  have  cost  as  follows  : 

313 


The  Trust  Problem 


New  Stocks. 
Preferred.  Common. 

For  $25,000,000  cash $25,000,000  $25,000,000 

For  $64,000,000  Carnegie  stock 96,000,000  96,000,000 

at  150  each  

$121,000,000         $121,000,000 

Stocks  of  the  nine  companies 336,581,848  342,567,019 

Total  to  pay  for  purchases $457,581,848         $463,567,019 

Taking  these  sums,  which,  as  will  be  seen,  are 
partly  estimates,  known  to  be  not  quite  accurate, 
but  probably  too  large,  from  ;$5 50, 000,000 
each  of  preferred  and  common,  the  total  amount 
authorized,  there  is  left  for  the  pay  of  the  syndi- 
cate and  as  treasury  stock  to  be  used  in  future : 

Preferred $92,418,152 

Common 86,432,981 

The  main  advantages  of  so  large  a  corpora- 
tion, as  explained  by  the  President,  Mr.  Charles 
M.  Schwab,  to  the  United  States  Industrial  Com- 
mission, are  found  chiefly,  perhaps,  in  the  fact 
that  it  has  so  complete  a  control  of  the  different 
varieties  of  ore  and  other  raw  materials  that  it 
remains  in  its  business  almost  entirely  indepen- 
dent of  other  organizations.  It  has  also  the 
opportunity,  to  a  much  greater  degree  than  has 
a  small  organization,  of  turning  its  different 
plants  to  work  upon  the  product  that  for  the 
time  being  seems  most  profitable,  though  this 
power  is  limited  by  the  nature  of  the  plants. 
It  has  also  the  advantage  of  owning  to  a  con- 
siderable extent  its  needed  transportation  facili- 
ties, both  in  its  fleet  on  the  lakes  and  in  its  rail- 

314 


The  United  States  Steel  Corporation 

ways.  Of  course,  all  of  the  other  adv^antages 
of  savings  from  organization,  distribution  of 
talent,  concentration  of  production,  and  so  on, 
are  likewise  obtained.  With  the  exception  of 
the  first  named  advantages,  and  perhaps  also  of 
a  somewhat  monopolistic  control  of  raw  mate- 
rials hinted  at  by  Mr.  Schwab,  it  has  no  advan- 
tage over  its  various  constituent  companies,  ex- 
cepting that  which  comes  from  the  added  power 
of  the  greater  capital. 


31: 


BIBLIOGRAPHICAL  NOTE 

For  those  who  wish  to  investigate  the  subject  further, 
the  following  books  will  be  found  to  be  suggestive  and 
helpful: 

Baker,  Charles  Whiting.     "  Monopolies  and  the  People." 
New  York  and  London :  G.  P.  Putnam's  Sons.    1899. 
368  pp.,  i2mo.     (Questions  of  the  day,  No.  59.) 
Collier,  W.    M.     "The  Trusts;  What  can  we   do  with 
them?     What  can  they  do  for  us?" 

New  York :  The  Baker  and  Taylor  Company.    1900. 
338  pp.,  8vo. 
Ely,  Richard  T.     "Monopolies  and  Trusts." 

New  York :  Macmillan  Company.     1900.     273  pp., 
8vo. 
Halle,  Ernst  L.  von.      **  Trusts  ;  or.  Industrial  Combina- 
tions and  Conditions  in  the  United  States." 

New  York:  Macmillan  Company.     1895.     350  pp., 
i2mo. 
Liefmann,    Robert.      "Die  Untemehmerverbande   (Kon- 
ventionen,  Kartelle).     Ihre  Wesen  und  ihre   Bedeu- 
tung." 

Leipzig:  J.  C.  B.  Mohr  (Paul  Siebeck).     1897. 
Schriften  des  Vereins  fiir  Socialpolitik.     Nr.  60.     "  Uber 
wirtschaftliche  Kartelle  in  Deutschland  und  im  Aus- 
lande." 

Leipzig:  Duncker  und  Humblot.     1894. 

317 


Bibliographical  Note 


United  States  Industrial  Commission.  Preliminary  report 
on  trusts  and  industrial  combinations,  together  with 
testimony,  review  of  evidence,  charts  showing  effects 
of  prices,  and  topical  digest.  Volume  I.  of  the  Com- 
mission's reports. 

Washington:  Government  Printing  Office.      1900. 

Trusts  and    industrial    combinations.      Statutes   and 

decisions  of  federal.  State,  and  territorial  law.  To- 
gether with  a  digest  of  corporation  laws  applicable 
to  large  industrial  combinations.  Volume  II.  of  the 
Commission's  reports. 

Washington:  Government  Printing  Off.ce.      1900. 

Report  of  the  Industrial  Commission  on  trusts  and  in- 
dustrial combinations  (second  volume  on  this  subject), 
including  testimony  taken  since  March  i,  1900,  to- 
gether with  special  reports  on  prices  and  on  the  stocks 
of  industrial  corporations.  Volume  XIII.  of  the  Com- 
mission's reports. 

Washington:  Government  Printing  Office.      1901. 

Report  of  the  Industrial  Commission  on  industrial 

combinations  in  Europe.  Volume  XVIII.  of  the  Com- 
mission's reports. 

Washington:  Government  Printing  Office.      1901. 


318 


INDEX 


INDEX 


ABILITY,  business, 
under     combina- 
tion, 38-41,  213. 
Acids,    increased 
price  of,  affects 
price  of  oil,  155. 

Addyston  Pipe  Company, 
109. 

Advertising,  by  means  of 
prizes  and  premiums,  28- 
29  ;  cost  of,  27-29  ;  eco- 
nomic loss  from,  28-29; 
expensive,  may  encourage 
combination  of  capital, 
208,  230  ;  of  brands,  15- 
16. 

Agent,  registration,  of  cor- 
porations, 272-273. 

Agreements  limiting  com- 
petition, 11-12,  33-34, 
108-111,  153,  228-229 
(see  pools  and  production, 
restriction  of) ;  statutes 
against  and  judicial  in- 
terpretation thereof,  218- 
219,  249-251  (see  re- 
straint of  trade). 

Agriculture,  combination 
difficult  in,  208-209. 

Amalgamated  Association  of 
Iron,  Steel  and  Tin  Work- 
ers, 159. 


Ambition,  personal,  an  ele- 
ment tending  to  promote 
combinations,  73-74. 

Amendment  of  incorpora- 
tion certificate  under  New 
York  Companies' Act,  277- 
278. 

Amendments  to  corporation 
laws  desirable,  222. 

American  Bridge  Company, 
312. 

American  Spirits  Manufac- 
turing Company,  26,  148 
(see  Distilling  Company 
of  America). 

American  Steel  and  Wire 
Company,  becomes  part  of 
United  States  Steel  Cor- 
poration, 310  ;  control  of 
output  of  wire  nails  by, 
166 ;  legal  monopoly  owned 
by,  in  barb  wire,  56,  170; 
prices,  effect  upon,  of  for- 
mation of,  169  ;  salesmen 
dispensed  with  by,  24, 
182  ;  trade  unions  not  rec- 
ognized by,  176 ;  wages 
increased  by,  173. 

American  Steel  Hoop  Com- 
pany, becomes  part  of 
United  States  Steel  Cor- 
poration, 311  ;  labor  or- 
ganizations recognized  by, 
176  ;   sizes   and   kinds  of 


21 


321 


Index 


goods  manufactured  by, 
36  ;  works  in  harmony 
with  other  concerns,  124. 

American  Sugar  Refining 
Company,  able  to  secure 
higher  prices  than  com- 
petitors, 31,  64  ;  competi- 
tion against,  137-140  ; 
competition  in  industry  in- 
duces formation  of ,  17,  34; 
date  of  formation,  17  ;  ille- 
gal practices  declared  im- 
politic by,  52;  monopolis- 
tic power  of,  71;  political 
policy  of,  •  192  ;  prices, 
effect  upon,  133-146  ;  re- 
organization, form  of,  113; 
savings  effected  by,  in  re- 
fining, 35-36  ;  tariff  bene- 
fits accruing  to,  45-46  ; 
trust  form  of,  and  judicial 
decision  against,  111-112; 
wages  increased  by,  172  ; 
weaker  competitors  taken 
in  upon  organization  of, 
196. 

American  Tin  Plate  Com- 
pany, becomes  part  of 
United  States  Steel  Cor- 
poration, 311  ;  labor  or- 
ganizations recognized  by, 
176  ;  organization  and 
financiering  of,  88-90;  or- 
ganization, form  of,  117, 
124;  prices,  effect  upon, 
160-163  ;  wages  increased 
by,  173. 

American  Tobacco  Com- 
pany, development  of 
foreign  market  by,  75. 

"  Anglo-Saxon  Superiority," 
194. 

Annual   report  of    corpora- 


tions under  New  York 
Companies'  Act,  302-304. 

Anti-trust  act,  Federal,  217. 

Appendices  :  A,  suggestions 
at  Chicago  Trust  Confer- 
ence, 257-260 ;  B,  pre- 
liminary report.  United 
States  Industrial  Commis- 
sion, 261-266  ;  C,  plan  of 
Bird  S.  Coler  for  regula- 
tion   of    trusts,    267-269  ; 

D,  New  York  Business 
Companies'  Act,  270-305; 

E,  plan  of  W,  J.  Brj-an 
for  regulation  of  trusts, 
306-307  ;  F,  United  States 
Steel    Corporation,     308- 

315- 

Arbuckle  Brothers,  139. 

Archbold,  John  D.,  152. 

Associations  checking  com- 
petition, 11-12  (see  agree- 
ments limiting  competi- 
tion). 

Auditing  railroad  accounts, 
power  of,  should  be  vested 
in  Interstate  Commerce 
Commission,  220,  264. 

Auditor  of  corporations 
under  New  York  Com- 
panies' Act,  2S2-2S3,  299- 
301. 

Austria,  attitude  of  people 
of,  toward  combinations, 
246-247  ;  extent  to  which 
combinations  have  de- 
veloped in,  228  ;  form  of 
combinations  in,  235;  iron 
combination  in,  233,  243- 
244  ;  laws  regulating  cor- 
porations in,  240  ;  legisla- 
tion proposed  in, 251-254; 
sugar  combination  in,  234. 


322 


Index 


B 


"DALANCE  sheet  of   cor- 

■*^  porations,  under  New 
York  Companies'Act  ,296- 
299,  301-302. 

Bankruptcy  of  weaker  pro- 
ducers, prevented  by  com- 
binations, 196-198. 

Banks,  part  taken  by,  in  or- 
ganization of  combina- 
tions, 91-97. 

Barb  wire,  patents  on,  owned 
by  American  Steel  and 
Wire  Company,  56,  170. 

Basis  of  capitalization,  the, 
chapter  vi.,  98-107  (see 
capitalization). 

Bedstead  industry  of  Bir- 
mingham, England,  form 
of    combination    in,    235- 

239- 

Beef,  dressed,  control  of 
supply  of,  by  combina- 
tion, 209. 

Bibliographical  note,  317- 
318. 

Blackmailing  of  corporations 
by  legislators,  190-194. 

Bonds,  issuance  of,  82-83  ! 
of  United  States  Steel 
Corporation,  313  ;  pre- 
ferred stock  in  lieu  of,  84- 

85. 

Borrowing  capital,  for  ex- 
tension of  business,  81- 
85. 

Bradford  Dyers'  Association, 
234-235,  245. 

Bradford  oil  fields,  156. 

Bradley,  Edson,  26. 

Brands,  advertisement  of, 
15-16. 

323 


Bremen,  price  of  refined  oil 
in,  151,  and  diagram  fac- 
ing page  150. 

Bryan,  William  Jennings,  7, 
100,  193,  224 ;  plan  for 
regulation  of  trusts,  ap- 
pendix E,  306-307. 

Bureau,  selling,  the  usual 
form  of  combination  in 
Europe,  223. 

Business  Companies'  Act, 
New  York,  6,  224  ;  appen- 
dix D,  270-305. 

Butler  County,  Pa.,  oil  wells 
in,  156. 

By  -  products,  manufacture 
of,  42  ;  utilization  of,  by 
the  Standard  Oil  Com- 
pany and  its  competitors, 
I53~i54  J  by  combinations 
generally,  213. 


QAPITAL,  amount  of,  as 
affecting  competition 
and  combination,  16-20, 
209 ;  borrowing  of,  for 
extension  of  business,  81- 
85  ;  possession  of  great, 
may  constitute  a  virtual 
monopoly,  64-76. 

Capitalistic  monopoly,  58- 
76  (see  monopoly). 

Capitalization,  basis  of, 
chapter  vi.,  98-107  ;  ex- 
cessive or  over-capitaliza- 
tion, 98,  103-107  ;  of  Eu- 
ropean combinations,  239- 
240  ;  upon  actual  cash 
value,  78,  98-101,  104 ; 
upon  earning  capacity,  99- 


Index 


107 ;  upon  intangible 
property,  79-80. 

Carnegie  Company,  310, 
313-314. 

Cash,  issuance  of  stock  for, 
78  (see  capitalization, 
basis  of). 

Causes  of  combinations,  21- 
55,  229-230. 

Certificate  of  incorporation, 
provisions  concerning, 
274-276  ;  amendment  of, 
277-278  ;  of  stock,  defi- 
nition of,  78  ;  provisions 
regulating  issuance  of, 
285-288. 

Character  of  industries 
adapted  to  combination, 
208-209. 

Charts  (see  diagrams). 

Chicago  conference  on 
trusts,  6 ;  appendix  A, 
257-260. 

Chicago,  Lake  Shore  and 
Eastern  Railway,  122. 

Chicago,  price  of  refined  oil 
in,  151-152,  and  diagram 
facing  page  150. 

Cincinnati,  price  of  refined 
oil  in,  151-152,  and  dia- 
gram facing  page  150. 

Closing  of  plants  by  com- 
binations, 34,  176-177, 
186-187,  196,  215. 

Coal    pool,    methods   of    a, 

IIO-III. 

Coal   syndicates,  European, 

233,  245,  247-248. 
Coler,  Bird  S.,  7,  223  ;  plan 

for  regulation   of    trusts, 

appendix  C,  267-269. 
Combination,  and  monopoly, 

chapter  iv.,  56-76  ;  in  pe- 


troleum, 150-157  (see 
Standard  Oil  Company)  ; 
in  sugar  industry,  133- 
146  (see  American  Sugar 
Refining  Company)  ;  in 
steel  and  wire,  165-170; 
in  tin  plate,  157-164;  in 
whiskey,  146-150  ;  of  la- 
bor and  capital  at  expense 
of  consumer,  187-188, 
235-239,  245  ;  of  various 
concerns  into  one  great 
corporation,        117  -  124, 

309. 
Combinations,  ability  under, 
38-41,  213  ;  advertising 
may  encourage,  208  ;  ag- 
riculture not  adapted  to, 
208-209 ;  ambition  pro- 
motes, 73-74 ;  among 
manufacturers,  14-20  ; 
bankruptcy  prevented  by, 
196-198,  241,  248  ;  banks, 
relation  of  to,  91-97  ;  beef, 
control  of  by,  209  ;  black- 
mailing of,  190-194  ;  by- 
products, utilization  of, 
153-154,  213  ;  capital, 
amount  of,  affects,  16-20, 
64-76,  209  ;  capitalization 
of,  9S-107  ;  character  of 
industries  adapted  to,  208- 
209  ;  closing  of  plants 
by,  34,  176-177,  1S6-187, 
196,  215  ;  destruction  of, 
47,  217-219  ;  discretion 
of  employees  of,  203- 
206  ;    economies    of,    21- 

43,  130-131,  153-154, 
171-189,  213,  229-230 ; 
effects  of,  130-170,  190- 
211  ;  efficiency  under,  125, 
186  ;  employees,  how  af- 


324 


Index 


fected  by,  24,  26-27,  171- 
189,  201-207,  235-239, 
244-245  ;  energy,  waste 
of,  prevented  by,  42-43  ; 
export  trade,  relation  to, 
75-76,  213,  241-244; 
favors  to,  chapter  iii.,  44- 
55.  60,  73,  219-221  ;  field 
of,  208-210  ;  financiering 
of,  87-90  ;  fittest,  survi- 
val of,  under,  195-200 ; 
flour,  controlled  by,  209  ; 
individual  self  -  direction 
and,  194-207,  216  ;  indus- 
trial, in  Europe,  chapter 
xii.,  22S-254 ;  interna- 
tional, 47-49,  222 ;  labor 
and,  24,  26-27,  171-189, 
215,  224,  235-239,  244- 
245  ;  leather,  37  ;  ma- 
chinery, how  distributed 
under,  36-38  ;  manage- 
ment and  organization  of, 
chapter  vii.,  108-129  ; 
milk,  controlled  by,  208  ; 
millinery  trade  not  adapted 
to,  209 ;  moral  tone  of 
business,  whether  lowered 
by,  216  ;  organization  and 
management  of,  chapter 
vii.,  108-129  ;  overreach- 
ing by,  70-71,  149  ;  pe- 
troleum, controlled  by 
(see  Standard  Oil  Com- 
pany) ;  power  of,  176- 
182,  211  ;  prices,  influ- 
enced by,  chapter  viii., 
130-170,  240-244;  pro- 
duction, relation  to,  33- 
36,  186-187,  200-206, 
240-241  ;  proposed  plans 
for  regulating,  251-307  ; 
public,    how  affected  by, 


103-105  ;  qualities,  good 
and  evil  of,  212-216  ;  rail- 
road, 204  ;  raw  material 
and,  41-42,  121-123,  130, 
133,  215,  234  ;  retail  trade 
and,  11-14;  salesmen  un- 
der, 24,  26-27,  182-1S3  ; 
savings    of,    21-43,    130- 

131,  153-154,  171-189, 
213,  229-230 ;  social  ef- 
fects of,  96-97,  190-211  ; 
State  legislation  against, 
217-219 ;  stock  of  (see 
stock)  ;  tariff  and,  44-49, 
217,  221-222,  241-244; 
thread,  47  ;  underwriters 
of,  90-97  ;  unions  and, 
175-182,  235-239,  244- 
246  ;  wages,  how  affected 
by,  132,  159,  167,  171- 
189,  215  ;  whiskey,  24, 
26-27,  147-150,  171-172, 
182,  196  (see  competition, 
corporations,  monopoly, 
pools,  trusts). 

Commercial  travellers  (see 
salesmen). 

Commissioner  of  corpora- 
tions in  Massachusetts, 
99. 

Committeeof  Manufacturers, 
testimony  of  Mr.  Green- 
hut  before,  172. 

Common  law  concerning  re- 
straint of  trade,  supple- 
mented by  statutory  pro- 
visions, 2iS-2ig  ;  inter- 
pretation of,  by  English 
courts,  249. 

Common  stock  (see  stock). 

Comparative     bookkeeping, 
energy  of  managers  stimu-  i 
lated  by,  235. 


325 


Index 


Competition,  advertising  un- 
der, 15-16,  27-29,  108; 
agreements  limiting,  il- 
ls, 33-34,  loS-iii,  153, 
228-229  (see  pools)  ; 
among  manufacturers,  14- 
20 ;  capital  affects  ques- 
tion of,  16-20,  209 ;  de- 
structive, 66-67  !  exces- 
sive, 11-12,  17,  33-34, 
108-111,  136,  140,  197- 
200,  229  ;  fear  often  pre- 
vents, 68-69  ;  fittest,  sur- 
vival of  under,  195-200  ; 
fluctuations  in  price  un- 
der unrestricted,  140-141  ; 
legal  monopoly  prevents, 
59  ;  nature  of,  chapter  i., 
10-20  ;  nominal,  13  ;  po- 
tential, in  case  of  a  capi- 
talistic monopoly,  61-72  ; 
prices,  not  always  fixed 
by,  11-14  ;  prices  under, 
usually  high,  21  ;  retail 
trade  and,  11-14  ;  sales- 
men under,  23-27  ;  wastes 
of,  chapter  ii.,  21-43  (see 
combination). 

Comptoir  Metallurgique  de 
Longwy,  249. 

Concealment  of  business  of 
corporations  encourages 
speculation,  126. 

Consumers,  degree  to  which 
excessive  competition  ben- 
efits, 197-200 ;  increased 
wages,  how  demand  for 
affects,  179-180 ;  injury 
of,  through  high  prices, 
215  ;  plan  to  combine 
interests  of  labor  and 
capital  would  be  at  ex- 
pense of,    187-188,    238  ; 


publicity  would  protect, 
224. 

Contents,  table  of,  v-xix. 

Continuity  of  office,  se- 
curing of,  to  directors, 
127  ;  of  policy,  voting 
trust  secures,  11 5-1 16, 

Control,  a  greater  degree  of, 
should  be  exercised  over 
trusts,  211. 

Convenience  to  buyers  from 
large  establishments,  30- 
31- 

Copper     syndicate,      Paris, 

49. 

Com,  price  of,  how  re- 
lated to  price  of  spirits, 
147. 

Corporations,  blackmailing 
of,  by  legislators,  igo- 
194  ;  capitalization  of  (see 
capitalization,  basis  of) ; 
Commissioner  of,  in  Mas- 
sachusetts, 99  ;  conceal- 
ment of  business  of,  en- 
courages speculation,  126 
(see  publicity)  ;  dishonor- 
able practices,  to  what  ex- 
tent employees  of,  must 
adopt,  207  ;  European, 
chapter  xii. ;  industrial 
combinations  in  Europe, 
228-254  ;  form  of,  largely 
determines  method  of 
•  management,  125-129  ; 
German  laws  concerning, 
107,  240  ;  government  in- 
spectors of,  223,  268  ;  im- 
proper influencing  of  leg- 
islatures and  courts  by, 
190-194,  246  ;  Massachu- 
setts law  concerning,  99  ; 
New     York     Companies' 


326 


Index 


Act,  270-305  ;  New  York 
State  Bar  Association, 
plan  suggested  by,  for 
capitalization  of,  106-107  ; 
normal  profits,  legislative 
restriction  of,  to,  iSg  ; 
ownership  of,  by  a  single 
corporation,  117-124,309; 
Puerto  Rico  law  concern- 
ing, 99  ;  proposed  plans 
for  regulation  of,  257-307  ; 
regulation  of,  attempted 
by  United  States  and 
many  States,  217-219  ; 
regulation  of,  desirable, 
222,  225-226  ;  reports  of, 
126,  223,  259,  302-304 ; 
social  organization,  effect 
of,  upon,  194-206  ;  stock 
and  stockholders  (see  the 
words)  ;  taxing  power 
may  be  used  against,  226; 
ultra  vires,  trust  form  of, 
held  to  be,  112  (see  com- 
binations, trusts). 

Corruption  of  legislatures 
and  courts  by  corpora- 
tions, 190-194,  246. 

Counsel  of  corporations,  283. 

Courts,  attitude  of  American 
and  European ,  toward  com- 
binations, 2i8-2ig,  249- 
251  ;  improper  influencing 
of,  by  corporations  and 
combinations,  190,  193  ; 
proposed  Austrian  combi- 
nation court,  252-253. 

Creditors,  not  materially  af- 
fected by  prevention  of 
bankruptcy  of  weaker  con- 
cerns, 196-197. 

Credits,  unwise  extension  of, 
28-29,  198. 


Crises,  commercial,  pre- 
vented by  large  combina- 
tions, 241,  248. 

Cross  freights,  31-32,  213, 
229  (see  freights). 

Crude  oil,  control  of  price 
of,  by  Standard  Oil  Com- 
pany, 155-156  ;  effect  of 
discovery  of  new  fields 
upon  price  of,  156-157 ; 
fall  in  price  of,  152. 

Cuban  cane  crop,  effect  of 
shortage  in,  145. 

D 

■r\EFINITION    of  trust, 

*-^  8  ;  of  promoter,  77  ;  of 
stock  certificate,  78 ;  of 
underwriting,  91. 

Demolins,  M.,  194. 

Department  of  Trade  and 
Industry,  committee  ap- 
pointed by,  proposes  regu- 
lation of  Austrian  com- 
binations, 252-254. 

Depression  of  industry,  at 
times  results  from  exces- 
sive competition,  199-200 
(see  competition,  exces- 
sive). 

Derrick's  Handbook  on  Pe- 
troleum, prices  quoted 
from,  150. 

Destruction  of  monopolistic 
combinations  attempted  by 
United  States  and  by 
many  States,  217-219  ;  of 
trusts,  by  removal  of  tariff, 
47,  217. 

Destructive  competition,  66- 
67  (see  competition). 

Diagrams,  illustrating  prices 


327 


Index 


of  iron  and  steel,  crude 
and  finished,  facing  165  ; 
of  oil,  crude  and  refined, 
150  ;  of  spirits  and  corn, 
146  ;  of  steel,  tin,  and  tin 
plate,     157 ;      of     sugar, 

133. 

Differential,  between  price  of 
raw  material  and  finished 
product.  132-133,  240- 
241  ;  in  case  of  petroleum, 
150-155  ;  steel  and  wire, 
165-170  ;  sugar,  133-146  ; 
tin  plate,  160-164  ;  whis- 
key, 146-150. 

Dill,  James  B.,  270. 

Dingley  tariff  on  tin  plate, 
164. 

Directors,  powers,  duties,  and 
liabilities  of,  under  New 
York  Companies'  Act , 
279-282,  284;  relations  be- 
tween stockholders  and, 
125-129,  214,  263  ;  re- 
sponsibility of,  should  be 
increased,  222. 

Discretion,  large,  granted  to 
employees  of  combina- 
tions, 203-206. 

Discriminations,  freight,  49- 
55,  200,  219-220,  264 
(see  freights). 

Dissolution  of  corporations, 
under  New  York  Com- 
panies' Act,  304. 

Distilling  and  Cattle  Feed- 
ing Company,  147,  148- 
149  (see  Distilling  Com- 
pany of  America). 

Distilling  Company  of  Amer- 
ica, organization  and  fi- 
nanciering of,  92-94;  form 
of  organization,  124  ;  pres- 


ent  policy    of,     149    (see 

whiskey  trust). 
Dividends,  291  (see  profits). 
Doscher,  Claus,  143. 
Duluth      and     Iron    Range 

Railroad    Company,    121. 
Duties,  tariff  (see  tariff). 


•pCONOMIES   of    combi- 

■'--'  nation,  disposition  of, 
130-131,  171-189  ;  possi- 
ble, 21-43,  153-154,  213, 
229-230. 

Effects  of  combinations,  po- 
litical and  social,  chapter 
X.,  190-2 1 1  ;  upon  prices, 
chapterviii.,  130-170,  240- 
244. 

Efficiency,  essential  object 
of  combination,  125  ;  of 
labor,  increased  under 
combinations  of  capital, 
1S6. 

Election  of  directors  and 
officers,  under  New  York 
Companies'  Act,  280-282. 

Employees,  how  affected  by 
combinations :  dishonest 
practices,  extent  to  which 
employees  are  compelled 
to  adopt,  207  ;  indepen- 
dent thought  and  judg- 
ment,opportunities  for, un- 
der combination,  203-206  ; 
nepotism,  201-202  ;  sales- 
men and  superintendents 
may  be  dispensed  with, 
24,  26-27,  182-185;  steadi- 
ness of  employment,  186, 
241  ;    trusts    and    wages, 


32i 


Index 


chapter  ix.,  171- 189  (see 
labor,  salesmen,  wages). 

Employment,  steadiness  of, 
under  combinations,  186, 
241. 

Energy,  industrial,  combi- 
nation prevents  waste  in, 

42-43. 

England,  attitude  of  courts 
of,  toward  combinations, 
249  ;  attitude  of  public  of, 
toward  combinations,  246; 
extent  and  form  of  com- 
binations in,  228,  234-239; 
laws  regulating  corpora- 
tions in,  239,  248-249  ; 
price  of  raw  and  refined 
sugar  in,  133-146,  and  dia- 
gram facing  133. 

Entrepreneurs,  union  of, 
held   valid    in    Germany, 

251. 
Europe,  industrial  combina- 
tions in,  chapter  xii.,  228- 

254. 

European  beet  crops,  effect 
of  shortage  in,  145. 

Evil,  from  excessive  power 
of  directors,  125-129;  from 
incompetent  industrial 
leaders,  202-203  I  nepo- 
tism, 201-202  ;  overcapi- 
talization, 98,  103-107 ; 
political,  from  corruption 
of  legislatures  by  corpora- 
tions, 190-194,  246  ;  quali- 
ties, evil,  of  combinations, 
and  remedies,  213-216, 
217-227,  258-307  ;  social, 
resulting  from  the  illegiti- 
mate relations  between 
bankers  and  combinations, 
96-97. 


Excessive  competition  (see 
competition,  excessive). 

Exportpricesof  oil,  151  ;  re- 
lation of  export  prices  to 
tariff,  241-244. 

Export  trade,  combinations 
i^5  75~76;  development  of , 
through  large  combina- 
tions, 75-76,  213. 

Extension  of  credits,  unwise, 
28-29,  198. 


pAVORS,  possessed  by 
industrial  combinations, 
chapter iii., 44-5 5  ; remedy 
for  evils  of  combination  in 
case  of  special,  219-221  ; 
special,  are  induced  by 
possession  of  large  capi- 
tal, 73  ;  special,  not  indis- 
pensable to  creation  of  a 
monopoly,  60. 

Fear,  an  important  element 
in  preventing  competition, 
68-69. 

Federal  anti-trust  act,  217. 

Federal  Steel  Company,  a 
combination  of  several 
companies  not  competi- 
tors, 41,  121-124,  309- 
310;  labor  organizations 
recognized  by,  176. 

Fees,  incorporation,  276. 

Field  of  combination,  limit 
of,  208-210. 

Financier,  promoter  and, 
chapter  v. ,  77-97  ;  role  of 
the,  90-97. 

Financiering  of  combina- 
tions, examples  of  meth- 
ods of,  87-90. 


329 


Index 


Fittest,  survival  of,  under 
competition  and  under 
combination,  195-200. 

Flour,  combination  control- 
ling, 209. 

Fluctuations  in  price,  likely 
to  result  in  certain  indus- 
tries from  unrestricted 
competition,  140-141  (see 
competition,  excessive). 

Foreign  market,  develop- 
ment of,  through  large 
combinations,  75-76,  213. 

France,  attitude  of  people 
of,  toward  combinations, 
246  ;  provisions  of  Penal 
Code  of,  concerning  co- 
alitions, 249-250. 

Freights,  advantages  in, 
without  illegal  discrimina- 
tions, 55  ;  classification  of , 
by  Interstate  Commerce 
Commission,  265  ;  dis- 
criminations in,  49-55, 
200,219-220,  264;  rates 
of,  control  by  Interstate 
Commerce  Commission 
recommended,  220  ;  sav- 
ings in  cross,  31-32,  213, 
229. 

G 

/^ARY,  Judge  Elbert  H., 

^^     184. 

Gates,  John  W.,  33,  47,  48, 
74,  158,  165,  176,  184. 

Genius,  individual,  indepen- 
dent of  monopoly,  209- 
210. 

Germany,  attitude  of  courts 
toward  combination  in, 
250-251  ;  attitude  of  pub- 
lic toward   combinations. 


246-248  ;  coal  syndicate 
in,  245,  247-248  ;  corpora- 
tion laws  of,  107,  240  ;  ex- 
tent to  which  combina- 
tions have  developed  in, 
228  ;  oil,  price  of  in,  151- 
152,  and  diagram  facing 
150  ;  sugar,  price  of  raw 
and  refined  in,  133-146, 
and  diagram  facing  133  ; 
sugar  combination  in,  234. 

Going  concern,  capitaliza- 
tion upon  value  as  a,  99- 
107,  239  (see  capitaliza- 
tion, basis  of). 

Gompers,  Samuel,  178. 

Good  qualities  of  combina- 
tions, 212-213. 

Government  inspection  and 
control  of  corporations, 
223,  251-254,  258-259, 
264,  268. 

Grades  of  sugar  explained, 

134. 
Greenhut,  J.  B.,  171. 
Guthrie,  Chas.  S.,  36-37. 

H 

TJANNIS  Distilling  Com- 
pany,  purchase  of,  93. 

Havemeyer,  Henry  O.,  34, 
39,  44,  45,  74,  142,  143, 
192. 

Hereditary  business  in  Eu- 
rope checks  tendency  to- 
ward combination,  230- 
231. 

Howe,  Judge  William  W., 
6  ;  formulation  of  sug- 
gested methods  for  solu- 
tion of  trust  problem,  ap- 
pendix A,  257-260. 


330 


Index 


TLLINOIS  Steel  Company, 
■*•     122-123. 

Incorporation  certificate,  un- 
der New  York  Companies' 
Act,  274-276  ;  amendment 
of  same,  277-278. 

Incorporation  fees,  276. 

Independence,  degree  of, 
granted  managers  of  Eng- 
lish combinations,  234. 

Independent  producers  of 
oil,  116,  151-152,  155  ;  of 
sugar,  137-140. 

Independent  thought,  oppor- 
tunities for,  under  large 
combinations,  203-206  (see 
self-direction). 

Individual  genius,  indepen- 
dent of  monopoly,  209- 
210;  self-direction,  whether 
destroyed  by  large  com- 
binations, 194-207,  216. 

Individuality,  developed  by 
the  art  of  managing  one's 
superiors,  205. 

Industrial  combinations  in 
Europe,  chapter  xii.,  228- 
254-  , 

Industrial  Commission  (see 
United  States  Industrial 
Commission). 

Industries,  character  of, 
adapted  to  combination, 
208-209. 

Influence,  improper,  of  cor- 
porations upon  legisla- 
tures and  courts,  190-194, 
246  ;  upon  political  or- 
ganizations in  general, 
215. 

Information,  should  be  given 


to  investors  and  stock- 
holders, 105-106,126-129, 
222-227,  259,  262-263, 
267-268,  286,  291-296 
(see  publicit)'). 

Inspectors,  government,  of 
corporations,  223,  268  (see 
government  inspection 
and  control). 

Intangible  property,  as  a 
basis  of  capitalization,  79- 
80  (see  capitalization,  basis 
of). 

Interest  charge,  for  carrying 
stock  of  raw  material, 
133- 

International  combinations, 
possibility  of,  47-49,  222. 

International  influence  of 
certain  combinations,  229. 

Interstate  Commerce  Com- 
mission, extension  of 
power  of  recommended, 
219-220,  264. 

Interstate  Commerce  Law, 
52,  53,  217,  264. 

Introduction,  3-9, 

Investors,  concealment  of 
facts  from,  and  deception 
of,  213-214  ;  information 
should  be  given  to,  105- 
106,  222,  259,  262-263, 
286,  291-296  ;  organiza- 
tion of  corporations,  form 
of,  should  be  studied  by, 
12S-129  ;  underwriting  of 
stocks  by  banks  affects, 
96-97. 

Iron  Age,  157,  165,  168- 
169. 

Iron,  combinations  in,  in 
Austria  and  Germany, 
233,    243-244 ;    increased 


331 


Index 


price  of,  affects  price  of  j 


and     pig-iron 
price  of,  159. 


industrial      combinations, 
oil,  154  ;  increased  wages  {      advocated  by  many,  217. 
in   iron   and   steel   indus-  j  Lake  Superior  Consolidated 
tries,    159,   167,   173  ;    ore  j      Iron  Mines,  312. 

increased  1  Law,  common,  concerning 
restraint  of  trade,  218- 
219,  249 ;  European  law 
in  certain  respects  favor- 
able to  combinations,  232- 
233. 
Leather  combinations,  37, 
Lee,  J.  W.,  152,  156. 


TARVIE,  J.  N.,  143. 

•^       Johnson  Company,  122. 

Judiciary  Committee  of 
United  States  House  of 
Representatives,  constitu- 
tional amendment  pro- 
posed by,  225. 


Legal  monopoly,  56,  59, 
170,  220—221  (see  monop- 
oly). 

Legislation,  chapter  xi., 
212-227  ;  evil  of  closing 
plants  may  be  reached 
by,  186  ;  European,  regu- 
lating corporations  and 
combinations,  248-254; 
needed  to  properly  con- 
trol trusts,  211,  257-269, 
306 ;  State  and  federal, 
against  trusts,  217-219. 
between     employers    and  ^  Legislatures,     improper    in- 


ABOR,   hov/  affected  by 
'    combinations  :  coalition 


employees  to  sustain 
prices,  187-188,  235-239  ; 
efficiency  of  labor  in- 
creased, 186  ;  publicity 
would  benefit,  224  ;  rela- 
tion of  European  combina- 
tions to,  244-246  ;  sales- 
men and  superintendents 
dispensed  with,  24,  26-27, 


fluencing  of,  by  corpora- 
tions and  combinations, 
190-194,  246. 

Let  alone  policy  toward  in- 
dustrial combinations,  ad- 
vocated by  many,   217. 

License,  corporations  should 
be  required  to  secure, 
306. 


182-1S5  ;      steadiness     of    Limit  of    field  of   combina- 


employment,  186  ;  wages, 
trusts  and,  chapter  ix., 
171-189,  215  (see  em- 
ployees, unions,  wages). 

Labor  organizations  (see 
unions). 

Laissez  faire  policy  toward 


tion,  208-210. 

Loans  on  stock  forbidden 
under  New  York  Compan- 
ies' Act,  28S-289. 

Lorain  Steel  Company, 
122. 

Louisiana  sugar  crop,  144. 


332 


Index 


M 

A/fcDONALD     oil     field, 

^^^     156. 

McKinley  tariff  on  tin  plate, 
164. 

McNulta,  General  John, 
147. 

Machinery,  distribution  of, 
in  large  combinations, 
36-38,  230. 

Management,  methods  of 
organization  and,  chapter 
vii.,  108-129. 

Margin  or  differential  (see 
ditlerential). 

Market,  difficulty  of  secur- 
ing, 22-23  I  foreign  de- 
velopment of,  through 
combinations,  75-76,  213. 

Massachusetts,  corporation 
law  of,  99. 

Meetings  of  stockholders, 
provisions  of  New  York 
Companies'  Act  concern- 
ing, 284-285. 

Merger  and  dissolution  of 
corporations,  under  New 
York      Companies'      Act, 

304- 

Milk,  combinations  in  cer- 
tain cities  to  control  sup- 
ply of,  208. 

Millinery  trade,  why  com- 
bination is  impossible  in, 
2og. 

Minnesota  Iron  Company, 
121. 

Monopoly,  capitalistic,  58- 
76  ;  combination  and, 
chapter  iv.,  56-76  ;  legal, 
56,  59,  170,  220-221  ; 
natural,     57-58  ;     power. 


monopolistic,  should  be 
held  in  check  by  society, 
211,  269,  306;  prices,  22, 
59-72,  253  ;  tariff,  in  re- 
lation to  monopolistic 
power,  242-243  ;  term 
monopoly  explained,  58, 
60,  64  ;  what  constitutes 
a  virtual,  60-61  (see  com- 
binations, trusts). 

Moore,  William  H.,  88. 

Moral  tone  of  business,  low- 
ering of  by  combinations, 
216. 

Morgan,  J.  P.,  &  Co.,  312- 
313. 


N 

"VTAILS,     wire    (see    wire 

-•-^      nails). 

National  Steel  Company, 
form  of  organization  of, 
117,  124  ;  labor  organiza- 
tions recognized  by,  176  ; 
part  of  United  States  Steel 
Corporation,  311. 

National  Tube  Company, 
31T. 

Natural  monopoly,  57-58 
(see  monopoly). 

Nepotism,  evil  of,  under 
large  combinations,  201- 
202. 

New  York,  Business  Com- 
panies' Act,  6,  224,  270- 
305  ;  Court  of  Appeals, 
decision  of,  against  trust 
form  of  organization,  112- 
113  ;  price  of  refined  oil 
in,  151-152,  and  diagram 
facing  150;  State  Ear  As- 


;33 


Index 


sociation,  plan  suggested 
for  capitalization  of  cor- 
porations, 106-107. 

Nominal  competition,  13 
(see  competition). 

Normal  price,  basis  of,  141 ; 
absence  of,  under  certain 
conditions,  141-142,  145. 

Normal  rate,  legislative  re- 
striction of  profits  to  a, 
189. 

NUrnberg,  combination  of 
brush  manufacturers  of, 
235. 

o 

QFFICE,    registered,    of 

^^     corporations,  272-273. 

Officers  of  corporations, 
under  New  York  Com- 
panies' Act,  282-283 ; 
liable  for  misrepresenta- 
tions, 284. 

Oil  (see  crude  oil,  petro- 
leum). 

Organization  and  manage- 
ment, methods  of,  chapter 
vii.,  108-129;  financiering 
and,  of  combinations,  87- 
90 ;  provisions  of  New 
York  Companies'  Act  con- 
cerning promotion,  291- 
296  ;  social  organization, 
effect  of  large  combina- 
tions upon,  194-206. 

Organizations  of  labor  (see 
unions). 

Over-capitalization,  98,  103- 
107,  239-240  (see  capi- 
talization). 

Over-production,    prevented 


by  industrial  combina- 
tions, 33-36,  241,  248. 
Overreaching,  by  combina- 
tions generally,  70-71  ; 
by  the  whiskey  combina- 
tions, 149. 


PACKAGES,       increased 
"^       price   of,    affects   price 

of  oil,  154-155. 
Parent    corporation,    organ- 
ization of  constituent  con- 
cerns under  a,    11 7-124, 

309- 

Patents,  legal  monopolies 
made  possible  by,  56,  59, 
170,  220-221  ;  proposed 
substitute  for,  220-221. 

Pay  of  promoter,  80-81,  87- 
96,  240,  248  ;  of  financier 
or  underwriter,  91-94  (see 
financier,  promoter). 

Penalty  for  delinquent  of- 
ficials under  New  York 
Companies'  Act,  289-290. 

Petroleum,  discovery  of  new 
fields  of,  156-157 ;  prices 
of,  150-157,  and  diagram 
facing  150  (see  crude  oil, 
independent  producers  of 
oil,  Standard  Oil  Com- 
pany). 

Pig-iron,  increased  price  of, 

159. 

Pipe  lines,  arbitrary  action 
of  Standard  Oil  Company 
in  crushing  rival,  155 
(see  Standard  Oil  Com- 
pany). 

Plants,  closing  of,  by  com- 


334 


Index 


binations,  34,  176-177, 
1S6-187,  ig6,  215. 

Political  and  social  effects  of 
industrial  combinations, 
chapter  x.,  190-21 1  ;  evil, 
of  corruption  of  legis- 
latures and  courts  by- 
corporations,  190-194, 
246. 

Pools,  forms  of,  108-112;  in 
coal,  iio-iii  ;  in  pipe, 
109 ;  in  whiskey,  33-34, 
108-109,  147 ;  in  wire 
nails,  61-62,  166  (see 
agreements  limiting  com- 
petition). 

Post,  James  H.,  140,  143, 
145. 

Potential  competition,  61- 
72  (see  competition). 

Power  of  combinations,  as 
against  employees,  176- 
182  ;  to  lower  moral  tone 
of  business,  216  ;  monop- 
olistic, should  be  held  in 
check  by  society,  211,  269, 
306. 

Preferred  stock  (see  stock). 

Premiums,  use  of,  in  adver- 
tising, 28-29. 

Press,  exaggeration  of  legis- 
lative corruption  by  the, 
192. 

Prices,  chapter  viii.,  130- 
170;  agreements  affecting 
(see  agreements  Hmiting 
competition,  pools)  ;  dia- 
grams illustrating  prices 
of  petroleum,  steel,  sugar, 
tin  plate,  whiskey,  facing 
133,  146,  150,  157,  165  ; 
character  of  goods  affects 
competition     in,     14-16 ; 


competition  does  not  al- 
ways fix,  11-14  ;  competi- 
tive, and  monopoly,  22  ; 
competitive,  usually  high, 
21  ;  effect  of  European 
combinations  upon,  240- 
241  ;  export,  151,  241- 
243  ;  fluctuations  in,  under 
unrestricted  competition, 
140-141  ;  monopoly,  fac- 
tors which  determine,  59- 
72  ;  monopoly,  checked  by 
combination  court,  253; 
normal,  basis  of,  141  ; 
over-capitalization  induces 
high,  105;  petroleum,  150- 
157  ;  steel  and  wire,  165- 
170;  sugar,  133-146;  tariff 
and,  241-244  ;  tin  plate, 
157-164 ;  whiskey,  146- 
150. 

Production,  increase  of, 
under  combination,  186  ; 
restriction  of,  33-36,  186- 
187,  241,  248  (see  agree- 
ments limiting  competi- 
tion); small  scale  produc- 
tion no  longer  possible, 
200-206. 

Profits,  legislative  restriction 
of,  to  a  normal  rate,  189  ; 
of  American  Sugar  Refin- 
ing Company,  136  ;  of 
Standard  Oil  Company, 
72,  173- 

Promoter  and  financier,  chap- 
ter v.,  77-97;  definition  of 
promoter,  77 ;  misrepresen- 
tations of,  214;  pay  of,  80- 
81,  87-96,  240,  248;  pro- 
visions of  New  York  Com- 
panies' Act  concerning, 
291-296  ;  responsibility  of 


335 


Index 


should  be  increased,  222, 
262-263  (see  financier). 

Property,  issuance  of  stock 
for,  78-80  (see  capital- 
ization, basis  of). 

Prospectus,  contents  of, 
under  New  York  Com- 
panies' Act,  291-296. 

Protective  tariff  (see  tariff). 

Publicity,  degree  of,  in  Euro- 
pean combinations,  239- 
240,  248-249,  252;  extent 
to  which  it  should  be  car- 
ried in  corporate  affairs, 
126-129,  222-227,  259, 
262-264,  267-268,  286, 
291-296,  306  ;  over-capi- 
talization and  other  evils 
of  combinations  would  be 
remedied  by,  105-106, 222- 
227  ;  policy  of,  would  ulti- 
mately lead  to  more  rigor- 
ous restriction,  226-227  ; 
provisions  of  New  York 
Companies'  Act  designed 
to   secure,   272-276,   285- 

304. 

Public  opinion,  European, 
not  hostile  toward  concen- 
tration of  capital,  246 ; 
favors  organized  labor 
rather  than  organized  capi- 
tal, 181  ;  hostile  to  trusts, 
172  ;  may  eventually  bring 
about  restriction  of  rate 
of  profits,  189  ;  when  en- 
lightened may  compel 
lower  prices  and  higher 
wages,  227. 

Public,  the,  affected  by  stock 
watering,  103-104  ;  by 
over-capitalization,  105  ; 
by  publicity,  224. 


Puerto  Rico,  corporation  law 
of,  99. 

Pure  Oil  Company,  competi- 
tion with  Standard  Oil 
Company,  152  ;  why  or- 
ganized as  a  voting  trust, 
116. 

Purpose  of  book,  4-5. 


QUALITIES,  good  and 
evil,  of  combinations, 
212-216  ;  of  goods,  tests 
of,  14-15. 


R 

"DADICALS,    attitude    of 

■'^  French,  toward  combi- 
.  nations,  246. 

Railroads,  combination  of, 
204  ;  recommendation  that 
Interstate  Commerce  Com- 
mission audit  accounts  and 
control  freight  rates  of, 
220,  264-265. 

Railway  discriminations  and 
rebates,  49-55,  200,  219- 
220,  264  (see  freights). 

Raw  material,  combination 
between  producers  of,  and 
manufacturers  of  finished 
product,  41-42  ;  effect  of 
combination  upon  pro- 
ducers of,  130,  215  ;  great 
increase  in  price  of,  in 
steel  and  iron  industry, 
158-159,  161  ;  interest 
charge  for  carrying,  133  ; 
supply  of,  assured  by  com- 


336 


Index 


bination  of  producers  of 
products  at  different  stages 
of  manufacture,  117-124, 
309  ;  waste  of,  133,  144, 
154  (see  by-products). 

Rebates  (see  freights,  dis- 
criminations in). 

Refining  sugar,  estimates  of 
cost  of,  143. 

Registered  Dffice  of  corpora- 
tions, 272-273. 

Registration  agent  of  cor- 
porations, 272-273. 

Regulation  of  corporations, 
attempted  by  United  States 
and  many  States,  217-219; 
desirable,  222,  225-226 ; 
proposed  plans  for  regu- 
lation of  combinations, 
appendices  A,  B,  C,  D, 
E,  257-307. 

Reid,  Daniel  E.,  158. 

Reincorporation,  provision 
for,  278. 

Remedy,  for  corruption  of 
legislatures  by  corpora- 
tions, 193-194  ;  for  evils 
of  industrial  combinations, 
105-107,  217-227,  appen- 
dices A,  B,  C,  D,  E,  257- 

307. 

Reorganization  of  the  trusts, 
forms  of,  112-116. 

Reports  of  corporations,  of- 
ten unsatisfactory,  126  ; 
suitable,  needed  to  protect 
stockholders,  223,  259  ; 
under  New  York  Com- 
panies' Act,  302-304. 

Responsibility  to  superiors, 
the  rule  under  present  con- 
ditions, 204-205. 

Restraint  of  trade,  common 


law  concerning,  supple- 
mented by  statutory  pro- 
visions, 218-219  ;  legisla- 
tion against,  needed,  25S  ; 
theory  of  European  courts 
concerning,  232,  249-251. 

Restriction  of  production, 
33-36,  186-187,  241,  248 
(see  agreements  limiting 
competition) ;  of  profits,  to 
a  normal  rate,  1S9. 

Retail  trade,  combination 
and  competition  in,  11-14. 

Roosevelt,  Governor,  6,  224, 
270. 


CALARIES  of  officers  of 
corporations,  under  New 
York  Companies'  Act,  283- 
284. 

Sale  of  stock,  usual  method 
of,  91-97. 

Salesmen,  necessity  of,  when 
competition  prevails,  23- 
27  ;  possible  saving  in, 
under  combination,  24, 
26-27,  182-183,  230  (see 
employees,  labor,  wages). 

Savings  of  combination,  dis- 
position of,  130-131,  171- 
189  ;  possible,  21-43,  153- 
154,  213,  229-230. 

Schwab,    Charles    M.,  314- 

315. 
Self -direction,   individual, 

whether  destroyed  by  large 

combinations,  194-207, 

216. 
Selling    bureau,    the    usual 

form   of    combination    in 

Europe,  233. 


337 


Index 


Services,  issuance  of  stock 
for,  78-81,  87-96. 

Sherman  act  of  i8go,  127. 

Shoddy  goods,  encourage- 
ment of  manufacture  of, 
by  excessive  competition, 
198. 

Small  scale  production,  pre- 
vention of,  by  combina- 
tions, 200-206. 

Smelters,  strike  by,  in  Colo- 
rado, 177. 

Smith,  E.  J.,  plan  for  avoid- 
ing strikes,  187-188  ;  form 
of  combination  originated 
by,  235-239,  245. 

Social,  control,  should  be 
exercised  over  trusts,  211  ; 
effect,  resulting  from  ille- 
gitimate relations  between 
bankers  and  combinations, 
96-97  ;  organization,  ef- 
fect of  large  corporations 
upon,  194-206 ;  political 
and  social  effects  of  com- 
bination, 190-211,  246  ; 
social  standards  at  fault, 
193- 

Society,  monopolistic  power 
should  be  held  in  check 
by,  211,  269,  306. 

Sources  of  information,  of 
author,  3-4. 

South  Improvement  Com- 
pany, 156. 

Speculation,  by  directors,  at 
expense  of  stockholders, 
214  ;  furthered  by  conceal- 
ment of  state  of  business, 
126  ;  furthered  by  over- 
capitalization, 103. 

Speculative  character  of  in- 
dustrial stocks,  one  cause 


of,  94-95  ;  speculative  or- 
ganization probably  wan- 
ing, 95- 

Spirits,  price  of,  how  re- 
lated to  price  of  corn,  147. 

Spreckels,  Claus,  137,  139. 

Standard  Distilling  and  Dis- 
tributing Company,  org.an- 
izationand  financiering  of, 
87,  92  (see  Distilling  Com- 
pany of  America). 

Standard  Oil  Company,  ac- 
count of,  in  connection 
with  prices  of  oil,  152-156; 
advantages  of  :  as  a  capi- 
talistic monopoly,  72,  from 
location  of  refineries,  32, 
in  freight  shipments,  52- 
55  ;  arbitrary  actions  of,  in 
crushing  rival  pipe  lines 
and  controlling  price  of 
crude  oil,  155-156  ;  com- 
petitors of,  form  voting 
trusts,  116  ;  development 
of  foreign  market  by,  75  ; 
dividends  of,  155  ;  form, 
original  of,  111-112,  un- 
der reorganization,  113- 
115  ;  natural  monopoly 
possessed  by,  through  con- 
trol of  pipe  lines,  58  ; 
prices  of  oil  furnished  by, 
150;  Pure  Oil  Company, 
competition  with,  152  ; 
utilization  of  by-products 
by,  153-154  ;  wages  paid 
and  treatment  of  employ- 
ees, 172-173  (see  inde- 
pendent producers,  petro- 
leum). 

State  legislation  against 
trusts,  217-219;  statutes, 
extend  common  law   rule 


338 


Index 


with  regard  to  restraint  of 
trade,  218-219. 

States,  a  few  large,  could 
accomplish  much  toward 
proper  regulation  of  cor- 
porations, 225-226,  269. 

Statistics  of  prices,  chapter 
viii.,  prices,  130-170. 

Statutes  in  various  States, 
extend  common-law  rule 
with  regard  to  restraint  of 
trade,  218-219. 

Steadiness  of  employment 
under  combinations,  186, 
241. 

Steadying  prices,  sugar  trust 
has  done  little  toward, 
139-140. 

Steel  and  wire,  prices  of, 
165-170,  and  diagram 
facing  165  ;  enormous  in- 
crease in  demand  for  steel, 
causes      increased    price, 

158-159- 
Stock,  assignment  of,  to 
trustees,  111-113,  115- 
117  ;  certificates  of,  issued 
for  cash,  78,  for  property, 
78-79,  for  services,  79-81, 
87-96  ;  common,  often 
used  to  pay  promoters, 
and  as  a  bonus  to  effect 
combinations,  86-90,  92- 
94  ;  ownership  of,  by  a 
single  large  corporation, 
114,  117-124,  309;  power 
of  corporation  to  buy  and 
sell,  290-291  ;  preferred, 
issued  in  lieu  of  bonds,  84- 
86;  sale  of,  usual  method 
of,  91-97  ;  suggested  reg- 
ulation of  issuance  of,  259, 
285-288  ;  watered,  77,  83, 


86-88,  98,  103-104,  119, 
224,  239,  259,  306. 

Stockholders,  degree  of  con- 
trol which  should  be  grant- 
ed to,  126-129;  injury  of, 
by  directors,  214  ;  protec- 
tion of,  223  (see  publicity). 

"Strike"  bills  (see  black- 
mailing of  corporations). 

Strikes,  plan  of  E.  J.  Smith 
for  avoiding,  187-1S8  ; 
possibility  of  defeating  by 
closing  certain  plants,  177; 
result  of,  in  industries 
where  labor  is  thoroughly 
organized,  178. 

Structural  steel,  use  of,  15S- 

159- 

Struggle,  will  determine 
manner  in  which  indus- 
trial savings  shall  be  dis- 
posed of,  1S0-181. 

Sugar,  Austrian  and  Ger- 
man combinations  in,  234; 
grades  of ,  explained,  134; 
guarantee  of  a  fixed  price 
to  producers  of  raw,  234  ; 
industry,  competition  in 
leads  to  combination,  17, 
136  ;  prices  of  raw  and 
refined,  in  England,  Ger- 
many, and  the  United 
States,  133-146,  and  dia- 
gram facing  133  ;  raw,  in- 
fluence of  combination  on 
price  of,  145-146;  refining, 
estimates  of  cost  of,  143, 
waste  in,  144  ;  trust  in 
(see  American  Sugar  Re- 
fining Company). 

Summary  of  good  and  evil 
qualities  of  combinations, 
212-216. 


539 


Index 


Superintendents  and  salaried 
officials,  dispensed  with 
by  combinations,  183-185, 
230  (see  employees). 

Survaval  of  fittest,  under 
competition  and  under 
combination,  195-200. 


nPALENT,  distribution  of, 

-■■  under  combination,  41, 
213  (see  ability). 

Tangible  property,  as  a  basis 
of  capitalization,  78-79, 
98-101,  104  (see  capital- 
ization, basis  of). 

Tariff,  protective,  in  relation 
to  monopolies,  44-49,  217, 
221-222,  241-244;  re- 
moval of,  in  case  of  raw 
sugar,  137-138  ;  tin-plate 
tariff,  164. 

Taxing  power,  can  readily 
compel  distribution  of  sur- 
plus profits  of  corpora- 
tions, 226. 

Thread  industry,  interna- 
tional combination  in,  47. 

Tin,  increased  price  of,  159  ; 
plate,  prices  of,  157-164, 
and  diagram  facing  157. 

Tone,  moral,  lowering  of 
by  combinations,  216. 

Trade,  export,  combinations 
in,  75-76,  213  ;  restraint 
of,  common  law  concern- 
ing, supplemented  by  stat- 
utory provisions,  218-219, 
258  ;  theory  of  European 
law  as  to  what  constitutes, 
232,  249. 


Trade  unions  (see   unions). 

Travelling  salesmen  (see 
salesmen). 

Trusts,  control  should  be  ex- 
ercised over,  211  ;  defini- 
tion of,  8  ;  destruction  of, 
attempted,  2ij-2ig  ;  Eu- 
ropean, chapter  xii.,  228- 
254  ;  form,  original,  of 
the,  111-112,  under  reor- 
ganization, 112-116  ;  pro- 
posed plans  for  regulation 
ofi  257-307  ;  tariff,  rela- 
tion of,  to,  44-49,  217, 
221-222  ;  ultra  vires,  trust 
form  held  to  be,  112; 
voting,  1 1 5-1 17  ;  wages 
and  the,  chapter  ix.,  171- 
181  (see  combinations, 
corporations,  monopoly). 


u 

TJLTRA  vires,  organiza- 
tion  under  trust  form 
held  to  be,  112. 

Understandings  among  re- 
tail dealers,  11-14  (see 
agreements  limiting  com- 
petition). 

Underwriter,  role  of  the,  in 
organization  of  combina- 
tions, 90-97  ;  term  under- 
writing defined,  91  (see 
financiering  of  combina- 
tions). 

Unions,  trade,  attitude  of 
combinations  toward,  175- 
176  ;  possibility  of  organ- 
ized labor  resisting  the 
encroachments  of  organ- 
ized capital,  176-182  ;  re- 


340 


Index 


lations  between  European 
combinations  and  labor 
unions,  235-239,244-246. 

United  States  Industrial 
Commission,  3,  6,  26,  44, 
47,  64,  87,  131,  136,  146, 
150,  158,  184,  220,  228, 
310  ;  preliminar}'  report 
of,  appendix  B,  261-266. 

United  States  Steel  Corpora- 
tion, organization,  capital- 
ization, constituent  com- 
panies, etc.,  appendix  F, 
308-315. 

Unprotected  industries,  in- 
ducements to  combination 
in,  46. 


V 

T/'IENNA,  combination  of 
soda  water  manufac- 
turers of,  235. 

Viewpoint  of  author,  9. 

Voting  trust,  form  and  ob- 
jects of  the,  115-117. 


w 

AGES,  effect  of  combi- 
nation upon, 132  ;  in- 
crease of,  among  iron, 
steel,  and  tin  workers,  159, 
167,  173;  trusts  and,  chap- 


W 


ter  ix.,  171-189;  215  (see 
employees,  labor). 

Walker,  Gen.  Francis  A.,  8. 

Wastes  of  competition,  chap- 
ter ii.,  21-43,  154,  igS, 
212-213,  229-230  (see 
economies  of  combina- 
tion). 

Watered  stock,  77,  83,  86- 
88,  98,  103-104,  119,  224, 
239,  259,  306. 

West  Virginia  oil  fields,  157. 

Wheat,  occasional  corners 
in,  208. 

Whiskey,  pools  in,  33-34, 
108-109,  147,  244  ;  prices 
of,  146-150,  and  diagram 
facing  146  ;  savings  ef- 
fected by  combinations  in, 
24,  26-27,  182  ;  trust  in, 
account  of,  147-150,  divi- 
dends paid  by,  196;  wages 
increased  by,  171-172  (see 
Distilling  Company  of 
America). 

Willett  and  Gray's  Statisti- 
cal Sugar  Trade  Journal, 

133-134. 

Vv'ire,  manufacturers  of,  dis- 
cuss international  combi- 
nation, 47-48  ;  nail  pool, 
61-62  ;  nails,  increase  and 
decrease  in  price  of,  166  ; 
prices  of  steel  and  wire, 
165-170,  and  diagram  fac- 
ing 165. 

Wittgenstein,  Herr,  243. 


341 


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